You see a small charge on your credit card you don’t recognize.

What do you do?

Small charges you don’t recognize can be a sign of a bigger problem. The New York Times takes a look at a lawsuit filed in March by the Federal Trade Commission, which claims that during the past four years, scammers raked in more than $10 million by putting small bogus charges – ranging from twenty cents to $9 – on consumers’ credit and debit cards. And in a scheme that apparently has dragged out for more than a year, scammers have made fake $1 purchases on iTunes customers' accounts, only to follow up with increasingly larger ones, sometimes totaling hundreds of dollars.

An unknown charge could mean your account was compromised. Or it could just be that you don’t recognize the name of the company billing you for a purchase you made. After all, merchants have a limited number of characters with which to describe their products and services on statements, and those descriptions can be cryptic.

So what should you do when you find an odd charge on your credit or debit card statement? Here’s how I would handle it:

1.    Call the merchant to find out whether the charge is for an item you actually purchased. If the phone call doesn’t clear it up,

2.    Call your credit card company and file a dispute.

3.    If you believe your card number has been compromised – especially in the case of a debit card – cancel the card and ask for a replacement with a new number.

Remember, under the federal Fair Credit Billing Act, the most you can be held liable for is $50 in unauthorized purchases, and that's only if the card was physically presented in the transaction. Most card companies won't even hold you responsible for that if you notified them of the fraud promptly.

However, you have to read your statements to identify fraudulent charges – especially the small ones that are easy to overlook.

Congresswoman Jackie Speier introduced the Protecting Homeowners' Credit History Act on July 15, stating, "Homeowners shouldn't have their credit scores damaged for doing the right thing. Rather than rewarding responsible homeowners who modify their mortgage payments to keep their homes, the credit reporting system punishes them."

Of course, she's partially right and partially wrong.

The loan modification process has largely been a train wreck since day one. Originally mortgages were reported to the credit bureaus as a "Partial Payment Plan" – which is considered a major derogatory item in your credit scores. Further, delinquent payments now pollute credit reports thanks to the mortgage lender requiring the homeowner to make less than their contractual payment just to prove that they can. Add to that the workload disasters that are causing some loan modification applications to take 6-9 months to be processed, and then denied, and you have a failure of epic proportions, which is considered a major derogatory item by credit scoring models.

While shielding a consumer's credit report from the fallout of a loan modification is a solid hypothesis, it might not be the right thing to do. If research yields findings that consumers who modify their loans are an elevated credit risk then the negative credit impact was warranted. But we don't know this yet because we've yet to see whether there is sufficient performance among consumers who've modified loans.

What we do know is this: Many consumers are simply trying to lower their monthly payments through a formal process with their mortgage lender. Does that sound familiar? It should, it's called a refinance. Assuming that the desire for a lower payment equates to a riskier borrower has not been proven and seems misplaced considering that we'd all like lower payments, for everyone.

What the legislation should include, and I don't believe it does, is a requirement that ALL loan modification applications must be fully processed within 30 days. That would all but guarantee no credit impact at all. The requirement to prove that you can pay less than you have been paying is comical and shouldn't be a requirement of the program. This would get HAMP back on the right track.

John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.

Gerri Detweiler – Personal finance author and Credit Advisor for Credit.com, Gerri contributes budgeting, debt recovery and savings information online. She is also the co-author of Reduce Debt, Reduce Stress: Real Life Solutions for Solving Your Credit Crisis.