The best way to avoid fraud is to know how the fraud occurs. Credit card fraud starts when the card is stolen or when the crucial information of the card is stolen. This includes name of card holder, the account number, expiration date, and verification/CVV code. Stolen cards should be reported quickly by calling the customer care department. But stolen information is difficult to trace and one can only know that the fraud has occurred when the bill statement. Ergo, one should also check bill statement carefully when it comes in.
Identity thefts on card are increasing these days. Identity thefts are of two types - application fraud and account takeover.

Application fraud refers to the fraud when the criminal steals your document to open an account in someone else name. The criminal may steal your important documents like utility bills and bank statements in order to build up useful personal information.

Alternatively they may create fake documents. In account takeover fraud the criminal may gather the information of a person’s bank account then the criminal calls up the bank as a genuine cardholder and ask the bank to send the mail to the new address. The criminal would then report the loss of card. And then once the criminal receives the replacement card, he/she can use it!

Skimming is another type fraud done on credit cards. It is typically done by the dishonest employee working with the merchant. In skimming the criminal uses a small electronic device which is known as skimmer to capture the magnetic strip data on the card. This is then transferred to another, duplicate, card. The duplicate card is then used for fraud purposes.
It is easy for the bank to detect this type of fraud. The bank can collect a list of all the card holders who have complained about fraudulent transactions. Then, it uses data mining to discover relationships among the card holders and the merchants they use.
For instance if a large no. of the afore-mentioned credit card holders have used a particular merchant, that merchant terminal or (point-of-sale device) can be directly investigated.

In case of application and account takeover frauds you don’t have to worry much. If any unsolicited card is activated without the consent of the recipient the central bank has said that the issuing bank has to reverse the charges. Plus, they (issuing bank) would be required to pay a penalty twice the amount of the charges reversed. All you must do is to report a complaint at the issuing bank. If you do not receive a satisfactory/any response within 2-3 weeks, please approach the Banking Ombudsman. The details are available at www.bankingombudsman.rbi.org.in.