What Is a Bust-Out?
A bust-out is 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 they don't plan to repay.
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. This is sometimes referred to as "sleeper fraud."
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. At the tail end of such a fraud scheme, the fraudster might make over-payments with bad checks in order to increase the credit limit for a short period before the behavior is caught.
Impact of Bust-Out Fraud
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:
- A sudden large dollar amount of purchases at a merchant where the cardholder normally only makes small purchases
- A credit report history of frequent consumer requests for new credit cards or higher credit limits
- 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.