A computer hacker has gained access to more than 5 million Visa and Mastercard credit card accounts in the US.

The companies say no actual fraud was committed

The two companies said on Tuesday that none of the information obtained, which would include credit card numbers, was used in a fraudulent way.

But a UK-based business crime expert warned account holders could still be at risk if their cards were not reissued.

Visa and Mastercard said the hacker breached the security system of a company that processes credit card transactions on behalf of merchants.

Numbers of credit cards can be used to make payments, such as buying plane tickets or hiring cars.

Both Visa and Mastercard operate zero liability policies, which protect card holders from having to pay for any unauthorised or fraudulent charges.

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Card holders at risk?

Peter Lilley, a fellow of the UK Chartered Institute of Banking and author of various books on hacking and business crime, said some hackers attack computer systems just to prove the point that the system is insecure.

But he told BBC News Online that account holders of the hacked credit cards could still be at risk.

“To gain access to 5 million different accounts is a lot.

“The bottom line is, when somebody has access to 5 million numbers, it puts those accounts at risk in the future.

“Strictly speaking, the only way to eradicate the risks would be to reissue all 5 million account holders with new cards.”

But he also admitted that scenario posed all sorts of logistical problems.

The Visa and Mastercard credit cards are issued by numerous financial institutions.

“And each institution could end up taking a different approach,” Mr Lilley said.

Banks warned

A spokeswoman for Visa in the UK could not comment on any plans to reissue the compromised cards in the US.

But a UK spokesman for Mastercard said that decision was up to the card issuers.

“Although fraud is at an all time low, high profile companies, government agencies, internet programs and websites will always be targeted by criminals – Visa and our vendors are no exception.

“It is for this purpose that Visa has global fraud prevention, detection and avoidance programs and is extending secure payments in the virtual marketplace,” Visa said in a statement.

Immediate alert

More than 560 million Visa and Mastercard cards circulate in the US.

Mastercard said it informed its members two weeks ago that more than 2 million accounts had been hacked into.

Visa said about 3.4 million of its accounts were accessed by the computer hacker.

Both companies said they immediately alerted the affected banks that issued the cards.

“Visa’s fraud team immediately notified all affected card issuing financial institutions, and is working with the third-party payment card processor to protect against the threat of a future intrusion,” the company said in a statement.

The firms are also working with US law enforcement officials.

It’s no wonder credit card issuers are feeling skittish about risky borrowers. With cardholder delinquency and debt increasing amid a housing and employment decline, issuers are eager to limit their risk exposure

“I think the standards have been tightened and I think that credit card issuers are quicker to change — i.e., increase — your rates,” says Bill Hardekopf, CEO of LowCards.com.

There’s good reason for issuers to be jumpy. “Generally in normal times, if you look at the hierarchy of what gets paid, it’s credit cards that tend to be the last thing if the going gets rough,” says John Ulzheimer, president of consumer educational services at Credit.com. Consumers first worry about housing, auto loans, utilities and telephone bills.

He says issuers will still offer new credit and make attractive offers, “but you really have to deserve it. The days of just giving someone a platinum credit card seems to be not necessarily gone, but is just being put on hold for quite some time.”

At the moment, issuers are also trying to “whittle out” some of the riskier customers and replace them with lower-risk borrowers, he says.

They determine the riskier subset by monitoring existing accounts. They look at the performance on the accounts at that institution using internal risk scores, as well as the person’s credit scores. A spike in risk could result in an interest rate increase, credit line reduction or freezing, or even a closed account. Inactive cards may get closed or not renewed.

This is one time where change isn’t a good thing. Issuers will scrutinize suspicious changes in behavior. “Essentially it’s things like: Are they paying the minimum payment when they always used to pay the balance in full, do they miss a payment, are they going or getting close to their credit limit?” says Dennis C. Moroney, a research director at TowerGroup, a research and advisory services firm.

Unfortunately, financial pressures also matter. According to the new 2008 Credit Card Survey from Consumer Action, three out of the top 10 credit card issuers said “market conditions,” “the economy” and “business strategies” could trigger a rate increase.

“I think out of your control are any business decisions that they make on a blanket level in regards to the fact that they’re doing poorly as publicly-owned companies or anything along those lines. Those are what we call the market conditions-type of repricing,” says Linda Sherry, spokeswoman for Consumer Action, a national consumer education and advocacy nonprofit.

“What can you control? You can definitely control whether you don’t pay late, whether your payment gets there on time,” Sherry says. Overall credit management ranks high up in importance, too, she notes.

Risky borrowers with huge outstanding balances might find their credit limit reduced in the worst way — lowering it to match the balance, and continuing to lower it to the new balance as you pay it off. This punitive move trashes your credit score, and is meant to get huge balances down or sometimes, to get rid of you as a cardholder.

Your best bet is to pay down balances as much as possible so that any negative changes cause minimal financial impact. Beyond that, avoid giving your issuers an excuse to jack your interest rate, zap your credit line or close your account.

How to protect your credit card accounts
Issuers may have an itchy trigger finger when it comes to penalizing risky borrowers, but they’re not out to alienate all their cardholders. Folks with great credit who remain consistent stand the best chance of not experiencing negative terms changes if they keep up the good work.

“The folks who are, unfortunately, going through these types of experiences with default rates, lower credit limits, higher interest rates, issuers closing accounts down on them, suspending HELOCs — these are generally reserved for people who either are on the riskier side of prime or are just flat-out nonprime, and the lender just doesn’t want to do business with them anymore,” says Ulzheimer.

Try to stay in the good graces of your creditors by keeping your accounts active, paying down balances and maintaining great credit scores above 700. Heed these other tips to stay in the clear.

1. Verify the status quo
“Step one is to make sure that you do, in fact, still have the same terms that you had originally,” says Ulzheimer. Check not only the interest rate on your account, he says, but the credit limit and the grace period. Issuers sometimes shorten grace periods on accounts that aren’t generating much revenue.

2. Avoid ‘atypical’ activity
Consumers spend in patterns, so any atypical moves could cause a drop in your credit score and attract scrutiny from your issuer, Ulzheimer cautions. “You don’t want to all of a sudden start revolving a balance just for the heck of it because you want to put more money toward your 401(k) or put more money toward other investments or stick more money in savings. If you have the ability to continue to pay in full, it’s probably a good idea to continue to do so.”

Ditto multiple balance transfers and credit application sprees. Like someone passing a police car, you don’t want to do anything that looks suspicious.

3. Keep up the good payment history
Always pay on time, keep balances low and pay them off every month, if possible. The higher your balances, the riskier you look.

Charging more than a third of your credit limit could “raise the eyebrows” of the credit card company, notes Hardekopf. Keeping balances below 30 percent of the credit limit — even if you pay your balances off every month — will help you stay under the radar.

4. Don’t neglect other bills
Utility companies and other service providers sometimes report payment information to the credit-reporting companies, says Steven Katz, director of consumer communications for TransUnion’s TrueCredit.com. An unpaid medical bill, for example, could wind up as a derogatory item on your credit report, bringing down your credit score.

5. Check your credit reports
Make sure your credit reports contain accurate information, because inaccurate, derogatory marks could damage your credit scores. Pull a different report every four months from one of the three major credit-reporting agencies by going to www.annualcreditreport.com. You’re entitled to a free credit report from each bureau every 12 months.

6. Plan ahead if missing a payment
If you know you’re going to miss a payment, don’t wait for a collector to call about the delinquent debt. Contact your issuer in advance to see if you can work out a payment plan.

Hardekopf advises calling your issuer to explain why you’re going to miss a payment. Emphasize your good payment history and say that while you don’t want to see your interest rate skyrocket, you aren’t trying to skip out on the bill. Ask if a payment plan could be arranged.

7. Read ‘junk mail’ from your issuers
People who don’t open correspondence from their issuers may get rude surprises. According to the Truth in Lending Act, an issuer has to give only 15 days’ advance written notice before taking an adverse action — an undesirable change to the terms of your card agreement.

Your acceptance of the terms change could come in the form of continued use of the card — known as “debit ratification” — or by failing to notify the creditor of your disapproval. Read the notice carefully to find out if you can opt out of the new terms. Your only choice might be to close the account if you refuse the changes.

Ignorance of a terms change could have disastrous effects. You could be one new furniture set away from exceeding your limit because you didn’t realize it had been reduced. Going over your limit could wreck your credit score, result in an over-the-limit fee, and possibly, an increased APR if done a second time.

Read anything that comes from your issuer, and if you pay your bills online, set up e-mail alerts that will notify you when you get close to your credit limit.

Imagine if someone suddenly took away all of your plastic. Credit cards are so much more convenient and safer than carrying cash, it’s hard to imagine life without them. As the credit card industry has evolved, new products and features make using credit cards even more appealing — if you know how to play the game.

Here are four ways to get the most out of your plastic.

1. Build a good credit rating.
Pay your credit card bills on time, stay well within your credit limits and be careful not to take on too much debt with too many cards and you’ll begin to establish an excellent record on your credit reports from all three credit reporting agencies. That information, in turn, is used to calculate your credit score — a number that tells potential lenders how likely you are to repay your debt. Use your cards to boost your credit score and you’ll not only qualify for zero and low-interest rates on competing cards but you may also be eligible for a better deal on your mortgage and auto insurance. Check out “3 steps to boost your credit score.”

2. Protect your big purchases.
If you buy something that’s damaged or defective and you used a credit card, you have the right to withhold payment under the Fair Credit Billing Act. You do need to make a good-faith effort to solve the dispute with the merchant. But if you can’t, your credit company will investigate the problem. If after contacting the merchant you are unable to settle and the card company sides with you, the charge won’t be added to your bill. Purchases made with debit cards are not covered under the Fair Credit Billing Act. In addition, some cards offer extended warranties and other protections for large purchases made on the card. Check with your credit card company.

3. Make online shopping safer.
The Fair Credit Billing Act also covers online purchases, making a credit card the best way to pay in cyberspace. If you’re worried about security, many credit card companies offer a one-time use account number for large online purchases that keeps your real account number off of the Web.

4. Use your card for a low-interest loan.
Robert Manning, research professor of consumer finance at the Rochester Institute of Technology and author of “Credit Card Nation,” once used a low interest rate credit card to buy a car. The fixed-rate on the card was better than what banks were offering on auto loans and he didn’t have any of the application hassles. (Of course, this only makes sense if you qualify for a very low interest card and a very high credit limit — and you can afford to pay the big balance off quickly.) Manning even suggests young people strapped for cash use a low-interest card to fund their 401(k)s in some instances. “Say you borrow $4,000 to contribute to your 401(k),” explains Manning. “Maybe your company makes a 50-percent match. Last year the stock market went up 10 percent. The free money from the match and the stock gains will far outweigh the interest on the ‘loan’ you made to yourself if you pay off the card responsibly.”

MasterCard Inc. and American Express announced today a lawsuit settlement that will result in MasterCard paying up to $1.8 billion to American Express. The settlement stems from American Express’ lawsuit against MasterCard over alleged anti-competitive practices that for years prevented American Express from forming banking relationships that could have widened its distribution. American Express settled a similar lawsuit against Visa last year for over $2 billion.

The MasterCard payments to American Express will be made in quarterly installments over three years.

The announcement of the settlement is timely for American Express in that the company’s CEO Kenneth Chenault says credit conditions have deteriorated “beyond our expectations” due to the worsening state of the economy, and the money gives the company “a multi-year source of funds that should, among other things, help to lessen the impact of this weakening economic cycle.”

In 2006, American Express (and Discover as well) were given the ability to partner with banks to create their own payment networks like those of MasterCard and Visa after American Express successfully argued in the courts that MasterCard and Visa should not be allowed to force banks into exclusive contracts. The result of that decision opened up the ability for there to be, for example, a Citi American Express Card or a Bank of America American Express Card, where in the past those banks could only offer Visa- or MasterCard-branded cards. The lawsuits by American Express attempted to recoup monies it said were lost to it due to these exclusive agreements that Visa and MasterCard negotiated in exchange for the banks using their payment networks and branding their cards as “Visa” or “MasterCard.”

Since the lawsuits were initially filed, both MasterCard and Visa have become public companies and seen their stock prices skyrocket. Despite the huge payment amounts each is making to American Express, the settlements were seen as smart moves because they remove outstanding lawsuits that could cause concern in the eyes of current and future shareholders.

Airline Virgin Atlantic today announced the launch of two Virgin Atlantic American Express Cards, with varying rewards and annual fees depending on your preferences, including the possibility of riding into space on Virgin’s sister service Virgin Galactic.

The Virgin Atlantic Black Card offers 3 miles per dollar spent on Virgin Atlantic purchases, and 1.5 miles per dollar on all other purchases, plus 20,000 bonus miles after your first purchase with the card, and up to 15,000 bonus miles every year that you continue to carry the card. The annual fee is $90.

The Virgin Atlantic White Card offers 3 miles per dollar on Virgin purchases, and 1 mile per dollar everywhere else, plus 12,500 bonus miles after your first card purchase and up to 7,500 bonus miles every year that you carry the card. The annual fee is $49.

Cardholders can use their miles for travel on Virgin Atlantic or one of their 14 airline partners, as well as cabin upgrades, car rentals, hotels, or a trip into space on Virgin Galactic (no word on how many miles that will require).

From now through January of 2009, for every $10,000 they spend with the card, cardholders get an automatic entry for a chance to win a trip into space on Virgin Galactic, without redeeming any of their miles.

The Virgin Atlantic American Express Cards are issued by Bank of America.