Common Bust-Out Fraud TacticsThe Fraudster’s Multi-Step Playbook
Examining How Bust-Out Fraud Works
Although the act of “busting out” is a final, dramatic event, the process of committing bust-out fraud is a long and sophisticated collection of tactics.
Each stage in the scam — from the use of synthetic identities at account creation to seemingly normal purchasing activity — is designed to cause financial institutions and merchants to let their guard down. In this chapter, I’m gonna highlight these tactics so that you understand how a bust-out scheme happens from start to finish.
Bust-Out Fraud
Scammers often look like legitimate cardholders... at least until they suddenly don’t. Take bust-out fraud, for instance. This happens when a scammer uses a synthetic identity to open up credit cards with issuing banks, build up a credit history, then max out the card and disappear.
How Does Bust-Out Fraud Happen?
Fraudsters establish seemingly legitimate credit histories by making small purchases and timely payments over several months. Once they've built trust and increased credit limits, they suddenly max out all available credit across multiple accounts before disappearing without payment.
To start the scam, the fraudster needs one or more active Social Security numbers. These can be obtained first-hand through phishing. They can also be purchased in bulk off the dark web.
Certain bust-out schemes target consumers who already have excellent credit scores. The criminal could pose as the legitimate cardholder, or create a “Frankenstein” synthetic identity. In either case, the account is fleshed out by adding fake contact information. More sophisticated scams include additional props, like phony social media accounts.
The fraudster may also look for individuals who have no credit rating at all. Children are popular targets, as are deceased individuals. It’s obviously more difficult to open a new account without a credit history, but that’s almost inconsequential. Even if the application is denied, the very act of asking for credit establishes a new credit history attached to that Social Security number.
One in 50 children become victims of identity theft every year. In fact, children may be at even greater risk of identity theft than adults.
While a blank credit record will usually not satisfy Visa or Mastercard, it may be enough for the fraudster to open a department store or gas station charge account. The brand, type, and spending limit of the card aren’t important. Simply having an open account is enough to launch the scam.
Once the account is established, the fraudster will go about nurturing and legitimizing it by making purchases and paying off the balance in full each month. Doing so helps earn them a reputation as a dependable, responsible borrower. Ironically, purchases and timely payments on each new card paint the fraudster as a lower credit risk.
Using “Cash Cycling” to Facilitate Bust-Out Scams
Fraudsters may use “cash-cycling” tactics, shifting debt between cards or loans to create the illusion of legitimate activity. This allows them to maintain access to funds and credit while having no intention of ever repaying what they owe.
At first glance, all these purchases may appear to be a financial investment in the scam. That’s not necessarily the case, though. The fraudster may be engaging in some form of “cash-cycling,” such as charging things on Card A, then taking advantage of interest-free transfer offers on Card B to pay off the original debt.
The money stays in the criminal’s “network” while simultaneously helping them show activity on multiple cards. The fraudster may even go so far as to apply for a car loan or purchase a high ticket item on a Buy Now, Pay Later plan. Of course, the buyer has no intention of repaying the lender.
Bust-out is just one of dozens of fraud types.
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Common Bust-Out Fraud Tactics
Common tactics used to create bust-out fraud include synthetic identities, address manipulation, authorized user exploitation, business account fraud, and account takeover.
By now, you should have gotten the core idea behind bust-out fraud. But, there are a lot of specific tactics that scammers can deploy to try and make sure you don’t pick up on their activity.
Understanding these common tactics can help merchants and financial institutions alike to recognize warning signs before it’s too late:
