The One Big Mistake Every Consumer Makes

You’re a smart consumer. Otherwise you wouldn’t be reading this.

You look for bargains, you read the fine print, you know how to navigate your way around the branches of a phone tree.

But aren’t you forgetting something?

Most enlightened consumers fail to do one thing with alarming consistency: they don’t review their credit card purchases in a timely manner – or at all.

No one knows exactly how frequently (or infrequently) American consumers review their credit card statements, but based on my own dealings with customers who are disputing a card purchase, I can tell you, it’s not often enough.

Consider the following slow-refund scenario: A customer complains to the company. A few weeks go by, and then I get an angry email, asking for help.

Often, I’ll ask the reader to check his credit card statement. Sure enough, nine times out of ten, the promised refund is right there in the account.

How’d that happen?

The customer didn’t bother to check.

I admit it, I’m guilty of failing to check my credit card statement online. (Never underestimate the power of denial.)

But I was surprised when I asked someone I considered to be one of the world’s smartest consumers how often she reviews her purchases.

She’s an accountant who, as you might expect, keeps meticulous records of everything.

When I asked her how often she logs on to her bank site to make sure she wasn’t overcharged for something, she confessed that it didn’t happen as often as it should.

Sometimes she checked every other week, sometimes monthly.

Every other week is fine, but monthly is pushing it. Anything longer than that, and you’re asking for trouble. Here’s why:

Your bank’s fraud detection algorithm isn’t as good as it thinks.

Little is known about how credit card fraud detection programs work, and that makes sense, because if everyone knew how they caught bogus purchases, they could easily be exploited.

But this much we do know: They are wrong about as often as they’re right.

I’m grateful to my bank for tagging the fraudulent purchase made at a Dillard’s department store in North Carolina on the same day I was buying groceries in Florida.

But I’m less pleased with the same credit card that refused to allow me to buy gas in Calgary, Canada, on a recent trip north of the border.

And I’m not pleased that it failed to catch the video game peripherals fraudulently billed to my account a few months ago.

Credit card fraud is tolerated by banks.

Here’s an unfortunate fact I discovered during my coverage of the credit card industry: Fraud is considered a cost of doing business and is written off.

If banks wanted to, they could virtually eliminate credit card fraud with new chip-and-pin technology, which offers an extra layer of authentication.

But the technology is deemed too expensive by American credit card companies, and they’ve been slow to adopt this promising feature.

My takeaway?

Banks will do everything they can to stop fraud, up to a point.

You only have 60 days to dispute a purchase.

Under the Fair Credit Billing Act, the clock is ticking after a bogus purchase is made with your card.

You have two months from your purchase to inform your bank that you didn’t buy the thing they claim you bought.

If you don’t review your credit card account, you’ll never know about the shenanigans and you’ll be stuck with the bill. Make sure that doesn’t happen to you.

You can’t budget what you don’t know.

Worst of all, if you don’t track your spending, you can’t possibly know how to budget for the future.

And although we don’t know how frequently people review their credit card statements, we do know that more than half of all Americans don’t have a budget.

There are many programs, including, ahem, Mint.com, where you can track your finances, easily track the purchases you’ve made, and set basic budgeting goals.

Here’s a tip: If you’re having trouble remembering to do it, set a recurring reminder on your favorite calendar application to check your credit card statement.

If you’re like me, you probably don’t want to know how much money you’ve spent last month. But ignoring your spending won’t make the problem go away.

Christopher Elliott is a consumer advocate who blogs about getting better customer service at On Your Side. Connect with him on Twitter and Facebook or send him your questions by email.