What Is Bust-Out Fraud? 4 Tips to Avoid Credit Card Shutdowns

What is bust-out fraud?

Bust-out fraud is when someone builds up a good credit profile, creates a pattern of normal usage and satisfactory repayment history, and then racks up a massive balance with no intention of paying the bill. 

The person committing bust-out fraud usually has the goal of getting as much "free" things they can by maxing out their credit cards and running away. 

4 Tips to Avoid Credit Card Account Shutdowns

Tip #1: Don't write bad checks

At the late stage of bust-out fraud, a common behavior is to write bad checks to pay off the card balances. Often times, writing a bad check to a credit card company will result in an account freeze or shut down. 

Most people have multiple checking and savings accounts. Before you write a check, double-check the account balance to make sure the check will clear. 

The last thing you want to do is accidentally display bust-out fraud behavior.

Tip #2: Decrease your credit limits

Some banks are comfortable issuing up to 50% of your income as your total credit limit. If you're approaching your maximum credit limit allowance, consider lowering your credit limits.

If you're someone who has multiple loan products (i.e., student loans, mortgage, auto loan) with a specific banking institution, then the bank is more exposed to you, imposing a higher risk. You can de-risk your profile by lowering your credit card limits. 

On the other hand, some people want higher credit limits because it lowers their credit utilization. If you're under 10% utilization, then you should be fine. 

If you're a business owner and you need a high credit limit for business purposes, be sure to ease into spending on the card. For example, if you recently opened a new business credit card, I don't recommend putting a $20,000 on the second day of having the card. This would raise a red flag, especially if you didn't have a previous relationship with the credit issuer. 

Tip #3: If you do need a high credit limit, pre-pay your cards

If you need a high credit limit and your utilization is high, I recommend routinely paying the balance down to seem low-risk. 

Another method is to slowly work your way up to a higher credit limit. Some credit issuers will automatically issue more credit limit if they see you use 60% of the limit and pay it off. I don't recommend calling in to ask for a credit limit increase right away, especially if it's a new credit card. 

Tip #4: Pre-pay your cards before applying for a new credit card

When a balance is close or over the credit limit (70% or above), credit issuers will view this behavior as high-risk.

This is also true if your credit limit utilization is 70% or higher for multiple credit institutions. 

If you pre-pay your cards before applying for a new credit card, it will lower the utilization and de-risk your profile.