Research and Statistics

6 ways you may be violating your card’s terms of service


Engaging in one or a number of any of these activities can result in your account being flagged … or even canceled.

The content on this page is accurate as of the posting date; however, some of our partner offers may have expired. Please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.


Using a credit card should be straightforward and simple. You’ve had plenty of practice, so it’s not likely you need a primer on how to “operate” one, right?

However, it’s possible that you could be inadvertently committing credit card fraud or at least violating your card issuer’s terms of service in some way. If you don’t comb through your credit card agreement (few people do), you could end up violating card issuers’ terms which could have consequences such as:

  • Denial of consumer protections for certain purchases
  • Credit card account cancellation
  • Prosecution

Understanding your cardholder agreement

Before diving into all the ways you could be inadvertently committing credit card fraud, it’s good to be familiar with your card issuer’s credit card agreement (also known as a cardholder agreement). All card issuers must make these documents available to cardholders and they typically arrive in the mail with your new card.

This agreement spells out what you can and cannot do with your credit card along with rights both you and the card issuer have regarding your credit card use.

“Cardholders should adhere to the agreement, which details the terms and conditions of their credit card account and includes information such as the rate, fees and other cost information associated with the account,” says Sarah DuBois, assistant vice president of communications at Wells Fargo.

For example, an important piece of information in these agreements deals with what types of purchases you can use your card for:  “You may use your consumer credit card account for purchases, balance transfers, cash advances and any other transactions we allow. You promise to use your account only for lawful personal, family or household purposes.”

Though using your credit card for illegal purposes (such as trying to buy online pornography, bitcoin or other cryptocurrency) would be the most obvious type of infraction if your charge was actually allowed to go through, there are plenty of others to watch out for. Here are some examples of practices that issuers either frown upon or regard as a direct violation of their terms of use.

1. Lying on your credit card application

When you complete a credit card application, you must certify that the information you provide is true and correct. Because card issuers are making a decision to extend credit to you based on this information, it’s important to represent it truthfully.

This is a measure that protects both you and the issuing bank. After all, you wouldn’t want to be approved for a credit card without enough income or personal responsibility to handle it appropriately. Be truthful with every aspect of your application to avoid problems down the line.

What can happen: If you’re caught providing false information on a credit application, you could face fines of up to $1 million. You could also be imprisoned for up to 30 years. Or both!

See related: Legal consequences for lying on a credit card application

2. Manufactured spending

Once upon a time, manufactured spending was a travel hacker’s dream. Manufactured spending is using a credit card to purchase cash equivalent items, such as reloadable prepaid cards.

Popular among the credit card churning crowd, manufactured spending can help them meet spending requirements for sign-up bonuses and boost credit card rewards points. However, the strategy has been facing more scrutiny tas both credit card issuers and retailers make changes in their business operations to crack down on this type of activity.

For example, American Express recently updated its terms of service to reflect its new policy toward what could be considered manufactured spending. Now, its terms exclude manufactured spending as eligible purchases to count toward earning bonus miles with the Platinum Delta SkyMiles® Credit Card from American Express:

“Eligible purchases to meet the Threshold Amount do NOT include fees or interest charges, balance transfers, cash advances, purchases of traveler’s checks, purchases or reloading of prepaid cards, purchases of gift cards, person-to-person payments, or purchases of any cash equivalents.

What can happen: Though this activity will not land you in jail, you do run the risk of clawbacks (losing the rewards you racked up with this practice) as American Express terms also state, “American Express reserves the right to modify or revoke offer at any time.”

“We do not necessarily know whether or not our customers are using their personal credit card for business purposes. However, we do reserve the right to close down an account that is being used for business purposes.”

3. Using your business credit card for personal use (and vice versa)

When applying for a credit card, the terms of service usually will indicate what kind of purchases can be made on the card – whether for business or personal use.

For example, a business credit card’s terms will prohibit users from making personal purchases with the business credit card. For example, here is language that now appears at the bottom of Chase business card monthly statements, “Your account is a business account, to be used only for business transactions. It is not intended for personal, family or household purposes.”

What can happen: Though your “inappropriate” business or personal transactions will go through on a card not categorized for that type of use, you run the risk of your account being closed. Wells Fargo’s Dubois details how her bank handles this behavior: “We do not necessarily know whether or not our customers are using their personal credit card for business purposes. However, we do reserve the right to close down an account that is being used for business purposes.”

Whether you have a credit card for business or personal use, be sure to observe card issuer rules on the types of purchases that can be made with your card.

4. Illegal credit card purchases

Credit cards cannot be used to make illegal purchases. For example, Chase’s terms of service states that, “You cannot use your account for illegal purposes, such as internet gambling and writing checks against uncollected funds” (i.e. convenience checks that exceed funds available through your credit card account).

Furthermore, American Express, prohibits participating merchants from accepting payment for items such as illegal drugs, adult content, lottery ticket sales and more.

What can happen: Whether your card will be accepted for these types of transactions depends on if the purchase is flagged by the seller’s merchant category code. Card issuers will immediately decline purchases related to charges they don’t allow on their network.

See related: How to find a business’s merchant category code

5. Selling your card’s tradeline (aka pay for piggyback)

Selling a “seasoned” tradeline of credit used to be a common practice to help people with poor credit histories by adding them as an authorized user to a card with a stellar payment history.

Though not all creditors report authorized user status or activity, it’s a practice that some still use to improve their credit score, and there are even companies dedicated to matchmaking tradeline sellers to would-be buyers hoping to boost their score.

However, unless you are adding a spouse or other family member to your card, issuers frown against this practice. You cannot assign your rights for payment to someone else to use your card. For example, Discover’s cardholder agreement states, “You may not sell, assign or transfer your Account without first obtaining our prior written consent.”

What can happen: If you are caught violating your card terms, your account could be closed. According to Barry Paperno, a credit score expert and former columnist for, “People who think a score achieved in this surreptitious way can lead to, say, an easy mortgage approval, will want to think again. Mortgage lenders rely on much more than a score. Good score or not, they will want to see how that score came about, i.e. accounts in your own name, any pending disputes, recent new account openings, etc.”

6. Committing chargeback fraud

Chargebacks occur when someone makes a purchase, then disputes it with their bank for reimbursement. Though there are “honest” cases, such as never receiving goods or receiving damaged goods or services  that result in a chargeback, there are some credit card users who will use the credit card dispute process to avoid paying for goods or services received.

According to the Federal Trade Commission’s summary of the Fair Credit Billing Act, consumers do have the right to dispute inaccurate information on their credit card statement. The FTC website indicates they can also dispute, “charges for goods and services you didn’t accept or that weren’t delivered as agreed.” The problem is that there are some people who dispute charges for goods they did receive and that were delivered as agreed, but they simply don’t want to pay for them.

Credit card users should know issuers are changing the way they deal with chargebacks. For example, Visa is implementing a new system that will streamline the chargeback process to help merchants offset losses on fraudulent chargebacks. Consumers should expect there may be more scrutiny applied to their chargeback requests going forward.

If you do have a genuine dispute, the recommended approach is to first reach out to the merchant directly to see if you can resolve any issues. Merchants are often willing to resolve issues to avoid chargeback fees levied by a card issuer. This keeps their costs low and helps with their customer retention rate. If you are not successful in finding resolution, only then should you contact your issuer to file a dispute.

What can happen: The need to request a refund is one of the advantages of using plastic for your purchases, but always resorting to the dispute process is both costly for merchants and could have repercussions for you. Your card could be canceled for violating your card agreement or you could even be flagged as a credit risk for future purchases with certain vendors or payment processors.

If you’ve engaged in one or a number of any of these activities without being flagged or having your credit card account canceled, congratulations. However, now that you’re aware of what constitutes fraud or credit card terms of service violations, you’re now accountable for this newfound knowledge. So, use your credit cards responsibly.

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

What’s up next?

In Research and Statistics

How to avoid timeshare scams: A guide

The Federal Trade Commission named timeshare scams one of the top frauds of 2017, making it one of the largest threats to travel security in the U.S. Our guide details what is a timeshare scam and how to avoid them.

See more stories
Credit Card Rate Report
Cash Back

Questions or comments?

Contact us

Editorial corrections policies

Learn more