Abstract: People have been worried by the prospect of identity theft for decades. This article introduces another type of identity fraud that’s lesser known but potentially riskier: synthetic identity fraud. This article explains how these scams typically work and what’s at stake.
The changing face of identity theft
Thieves use personal data to manufacture synthetic identities
People have been worried by the prospect of identity theft for decades. But many clients are unaware of another type of identity fraud that’s potentially riskier: synthetic identity fraud. Forensic experts estimate that this type of scheme is more prevalent than so-called “true-name” fraud.
How it works
Traditionally, identity theft occurs when a thief assumes a person’s identity and personal information. In other words, the thief pretends to be the victim. Synthetic fraud works differently.
Here, the perpetrator typically combines real and fabricated information to produce a fictitious identity and then uses it to apply for credit. Alternatively, a perpetrator could combine the actual information of multiple identities. For example, someone could use your client’s Social Security number (SSN) with another individual’s name and a third person’s address.
A fraudster’s initial credit application using the synthetic identity will likely be rejected. But credit reporting agencies will open a new credit file for the identity. The fraudster can then try again — and stands a good chance of approval. Some card issuers offer small credit lines to applicants with little or no credit history. These “starter” cards can be used to establish a credit history, paving the way to more lucrative opportunities for fraud in the future.
Why it’s so costly
What’s at risk if your client’s SSN is involved in one of these scams? Fragmented (or sub) files could be associated with their SSN at credit reporting agencies. Because many agencies don’t bother cross-referencing SSNs with other identifiers (such as names or addresses), victims may have fragmented files for entirely different identities linked to their main credit files.
Credit agencies can take months or even years to clean up negative data from fragmented files. In the meantime, creditors are relying on false information in your client’s credit reports.
Experienced perpetrators often seek out SSNs that aren’t actively used. For example, a thief who incorporates a child’s SSN might not be discovered until the victim tries to apply for student loans or jobs with employers that check credit histories.
How to help
Take the time to educate your clients about synthetic identity fraud. Explain how these scams work and what’s at risk. Also suggest preventive measures, including obtaining free credit checks annually and subscribing to identity theft protection services that provide real-time monitoring. Forensic accounting experts can help review clients’ credit reports for signs of synthetic fraud and help them work with credit agencies to correct errors in an expedient manner.