Identity thieves depend on speed and deception to make the most of their stolen information. They submit fake tax forms in your name before you submit your own. They drain your bank account before you check your balance. They run up credit card charges before you realize charges have been made. They take out loans and open credit accounts in your name before you can check your credit report.
When your identity is stolen, you can limit the damage through regularly checking accounts and credit reports, and applying fraud alerts and credit freezes (which are both free of charge) when necessary. These actions narrow or close the window for criminals to take advantage of your stolen identity. If you would like to monitor your credit to prevent identity theft and see your credit report and score for free, join MoneyTips.
As defensive tactics against identity theft increase, criminals are shifting toward a new tactic – synthetic-identity fraud.
Synthetic-identity fraud occurs when a criminal creates a fictional identity from scratch – complete with a made-up Social Security number – or uses one snippet of real information such as a child's stolen Social Security number and fabricates the rest.
Once the identity gains credibility, thieves can rack up charges without fear of discovery by a legitimate account holder. Creditors will eventually crack down on the overdrawn and overdue accounts – but there is no legitimate account holder to hold responsible.
How does a completely made-up identity get legitimacy? Criminals take advantage of seams in the credit application system. When an unknown applicant applies for a source of credit, a new credit file is created. Without a credit history to go with that file, the lender is likely to deny the application – but the creation of the credit file alone provides a basis for future legitimacy.
The scammer simply applies for more credit, targeting sources that are tolerant of limited credit histories. As more applications are received, the credit file grows. Lenders can become convinced that the applicant is a real person with no credit history.
All it takes is one approved application to convert the credit file into a credit report. The approved use will probably be for a credit-building card with a relatively low limit. Fraudsters make legitimate purchases and pay them off in order to get higher limits before maxing out the card.
An instantaneous means of cross-checking Social Security numbers would prevent synthetic fraud. Unfortunately, no such method exists currently.
Ironically, the Social Security Administration (SSA) accelerated the problem with a policy designed to reduce identity theft. Prior to 2011, Social Security numbers were issued in a pattern relating the first several digits to the assignee's zip code.The SSA switched to random numbers, hoping to stop scammers from hacking numbers using information available through public sources.
Randomization does make it difficult for scammers to reconstruct a Social Security number – but it also gives the SSA no quick way to verify that a Social Security number has been issued and who the recipient was. Banks must sift through enormous amounts of information to spot synthetic fraud.
Synthetic-identity theft is a small part of the estimated $16.8 billion in annual identity theft losses, but the share is growing. The credit bureau TransUnion estimates that people who don't exist held $355 million in outstanding credit card balances in 2017. That represents an increase of more than eight times the dollar value from 2012.
You can't do anything to stop synthetic-identity fraud, but you can make it more difficult for a thief to make off with your identity. Protect your information and check your accounts regularly. Make it so difficult a criminal would rather make up new identities than try to steal yours.
If you would like to prevent identity theft, check out our credit monitoring service.