Synthetic Identity Fraud

The public is, by now, aware and informed as to the reality and consequences of identity theft and how it occurs. Baddies steal your personal information and assume your identity, create new credit and amass new debt—leaving you to deal with the aftermath.

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But as technology and awareness advance, so must criminal development. The latest surge has been the world of synthetic identities. Sounds cool, right? Well, it isn’t.

In the new frontier, criminals synthesize a new identity from a combination of real and/or fictitious information. The only real piece of information needed is a valid social security number (SSN). Though the specifics of who the number belongs to are not imperative, criminals prefer an SSN that is not often used in the credit world and target those of children, the elderly and even the deceased. Armed with an SSN, the criminal creates the synthetic identity (SI) by adding a fictitious name, date of birth and address. 

The first step in the fraud is to introduce the SI into the credit system by applying for a credit card. A credit card company will receive the request and send the application information to Equifax, Experian and TransUnion—the three major credit reporting agencies (CRAs). Initially, since there is no record of the SI, the credit application will be denied; however, this initial inquiry establishes the SI into the CRA system. With the SI integrated into the CRA system, it now has a record of existence…the same as an actual person without any credit history.

The next step is to apply for a credit card with a low credit line, which is marketed toward people just beginning to establish their credit (usually a $300–$500 credit limit). Once approved, the credit report of the SI is updated by the CRAs and the fraud is now gaining traction. The criminal will use the card, pay the bill timely, and build a positive credit history for the SI. Ultimately, the goal is to establish the ability to obtain more lucrative credit that can be abused, leaving lenders to chase a fictitious perpetrator. 

While considered only a minor threat years ago, some experts estimate that 20 percent of credit card losses last year were attributable to SI fraud—and that losses to the credit companies (which ultimately pass down to the consumer level) are only expected to increase until additional technology, security measures and safeguards, most likely in the form of developing artificial intelligence, can effectively combat this surge.

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