DEFINITION of '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 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. 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 overpayments 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:

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 secured credit card is a type of credit card that is backed ...
  2. Credit Card Debt

    Credit card debt is a type of unsecured liability which is incurred ...
  3. Credit Card Balance

    Credit card balance is the amount of charges, or lack thereof, ...
  4. National Issuers

    Credit card companies that give credit cards to creditworthy ...
  5. Credit Card Authorization Key

    A code used in credit card transaction authorizations that confirms ...
  6. Credit Limit

    Credit limit is the amount of credit that a financial institution ...
Related Articles
  1. Insights

    How to Protect Yourself From Credit Card Fraud

    Credit card fraud is sharply up. Learn the worst types and how to protect yourself.
  2. Insights

    The Evolution Of Credit Card Security

    With the increase in credit and debit card fraud, these measures have been taken to ensure your financial security.
  3. Personal Finance

    Why More Millennials Need Credit Cards

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

    Credit Card Tutorial

    Credit cards can be a useful tool if you know what you are getting into. Learn the risks, rules, history of credit cards.
  6. Personal Finance

    How To Establish A Credit History

    Can't get a credit card without a credit history, and can't get a history without a card? Break the Catch-22.
  7. Personal Finance

    The Truth About Store Credit Cards

    Learn about the good, bad and the ugly behind store credit cards.
  8. Personal Finance

    Credit Cards to Help You Recover from Poor Credit

    A poor credit score can put a huge damper on your finances. Thankfully using the right credit card can help boost your score and turn around your finances.
Hot Definitions
  1. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  2. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  3. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
  4. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
  5. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
  6. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
Trading Center