DEFINITION of 'Bust-Out'

A type of credit card fraud where an individual applies for a credit card, establishes a normal usage pattern and solid repayment history, then racks up numerous charges and maxes out the card with no intention of paying the bill. Bust-out consists of an initial phase where the individual works to develop the card issuer’s trust and a strong credit profile with the goal of opening numerous accounts and receiving credit line increases so that more funds are available for the second phase of the fraud, where the individual makes transactions that he or she doesn’t plan to repay.

BREAKING DOWN 'Bust-Out'

Bust-out most commonly involves regular credit cards, but can also be carried out with a closed-loop store credit card, home equity line of credit (HELOC) or other form of revolving credit. According to Experian, fraudsters typically use their cards for four months to two years before “busting out”: accumulating the final charges they don’t intend to repay. Individuals with the intention of committing this type of fraud would usually open numerous accounts gradually  – topping out at about 10 on average – which they would eventually max out and become delinquent on at about the same time. Once they become delinquent, they won’t be able to acquire additional credit, but they may repeat the fraud with stolen identities.

Bust-out results in significant losses for credit card companies, but fraud detection algorithms can identify patterns in a fraudster’s behavior to predict bust-out before it happens. Examples of activity that may indicate a bust-out in progress include:

1. A sudden large dollar amount of purchases at a merchant where the cardholder normally only makes small purchases

2. A credit report history of frequent consumer requests for new credit cards or higher credit limits

3. A credit report history that doesn’t go back very far in time and doesn’t have a mix of different types of credit, like auto loans and mortgages in addition to the credit cards.

There are also legitimate reasons why consumers might have these types of activity, but further studying a consumer’s various credit cards from different issuers and comparing the activity across those cards can indicate whether a bust-out has occurred or could be imminent.

RELATED TERMS
  1. Secured Credit Card

    A type of credit card that is backed by a savings account used ...
  2. Business Credit Card

    A credit card intended for use by a business rather than for ...
  3. Credit Card Balance

    The amount of charges, or lack thereof, owed to the credit card ...
  4. Prepaid Credit Card

    A card issued by a financial institution that is preloaded with ...
  5. National Issuers

    Credit card companies that give credit cards to creditworthy ...
  6. Zero Balance Card

    A credit card on which a consumer does not owe any money because ...
Related Articles
  1. Small Business

    How to Use Small Business Credit Cards

    A small business credit card can be a convenient way to increase your company's purchasing power, but must be carefully managed.
  2. Personal Finance

    Why More Millennials Need Credit Cards

    Here's why more Millennials should have credit cards – even though a majority don’t.
  3. Personal Finance

    Terrible Credit Score? Try These Credit Cards

    When your credit is less than stellar you have fewer choices. But some are still better than others. Here's our read on which cards to get.
  4. Personal Finance

    Credit Cards For People With Bad Credit

    Yes, you can get a credit card and start repairing your credit history. But brace yourself for low credit limits, sky-high interest and staggering fees.
  5. Personal Finance

    How Many Credit Cards Should You Have?

    National stats indicate most consumers have three or more cards - are you one of them?
  6. Personal Finance

    How Credit Cards Built A Plastic Empire

    A decade before Mastercard or Visa existed, the first credit card company was introduced.
  7. Personal Finance

    Should You Use Credit Cards To Fund Your Business?

    We give you 4 reasons to consider using a credit card instead of a business loan to fund your business, and how to be smart about it.
  8. Personal Finance

    Does a Lost or Stolen Credit Card Hurt Your Credit Score?

    Learn the ways in which a lost or stolen credit card can hurt your credit, and understand the steps you can take to protect yourself if this happens.
RELATED FAQS
  1. Where are secured credit cards accepted?

    Repair a damaged credit history or establish one by opening a secured credit card account with a collateral deposit into ... Read Answer >>
  2. How do secured credit cards help me build my credit score?

    Find out how secured credit cards function and why they can be very useful for those looking to build or rebuild their credit ... Read Answer >>
  3. Am I responsible for fraudulent charges on my credit card?

    In the event that your credit card is stolen in the United States, federal law limits the liability of card holders to $5 ... Read Answer >>
  4. What are some common models that practitioners use in quantitative analysis of equity ...

    Understand which aspects of a credit card agreement make accepting a new credit card offer a good deal or one that should ... Read Answer >>
Hot Definitions
  1. Portable Alpha

    A strategy in which portfolio managers separate alpha from beta by investing in securities that differ from the market index ...
  2. Run Rate

    1. How the financial performance of a company would look if you were to extrapolate current results out over a certain period ...
  3. Hard Fork

    A hard fork (or sometimes hardfork) is a radical change to the protocol that makes previously invalid blocks/transactions ...
  4. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  5. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  6. Zero Day Attack

    Zero Day Attack is an attack that exploits a potentially serious software security weakness that the vendor or developer ...
Trading Center