How the fastest growing identity fraud impacts innocent children

Computer theft with hands on laptop keyboard

Every year, millions of people and businesses are affected by fraud. Some experts estimate that the cost of fraud to the United States economy is around $50 billion per year. With this in mind, itís clear that shady practices are prevalent in todayís web-based world. While there are many types of fraud, synthetic identity fraud is particularly difficult to understand, detect, and prevent.

Synthetic identity fraud is a type of fraud that involves creating a fake identity as opposed to stealing an existing identity. Typically, the criminal uses a fake social security number and builds out a fake persona, complete with address, names, birthdays, and more. It can be very difficult for businesses to protect themselves from con artists engaging in synthetic fraud activities because theoretically they do not exist.

Synthetic identity fraud is quickly becoming one of the most common types of identity fraud. The Federal Reserve reported that it was the fastest growing financial crime in the country, costing lenders $6 billion in 2016. Hereís what you need to know:

How It Works

There are various ways a person can go about running a fake identify scheme. In many cases, fraudsters begin with existing social security data and couples that with a slew of fake information, such as fake addresses and dates of birth. Most often, the real social security number belongs to an innocent minor. Compare this to traditional identity theft, which involves stealing information from an individual, selling it on the black market, or buying it from the black market.

Next, the criminal will use this social security number to apply for a card. Most likely, the card will be denied because there is no credit history, but by making this gesture, it creates the first building block of a profile for a fake person. From here, the criminal will go on to create other legitimate accounts under this guise to further build out the footprint for the fake identity. Over time, this fictitious person is able to build a credit report for themselves.

Periodically, they may make payments on this card to acquire a high score, and when the score is high enough, theyíll bust out of the scheme and squeeze as many dollars as they can out of their credit score before moving onto the next scheme. In many cases, the criminal is managing several synthetic identities at once.

What Is It Used For?

The most common use cases for synthetic identity fraud are lines of credit. However, these fake identities can also be used for healthcare, filing fake tax returns, or for employment. In these cases, fake identities typically arenít created for financial reasons, but rather to achieve a goal they might have difficulty with. For example, an undocumented immigrant might use a fake identity to secure a legal job. A fake identity would make it possible to get hired, open bank accounts, receive payments, and secure a living situation.

Who Gets Hurt?

Synthetic identity fraud is not a victimless crime. In these cases the bank, lender, or credit card company are left to foot the bill for any charges incurred. However, these types of crimes will have a huge impact on children in the future, as many frauds use real childrenís social security numbers to open accounts, combining them with false information.

The federal agency switched to a randomized number system in 2011, which made it easier for childrenís social security cards to be used because their numbers werenít linked to geography and birth day. Some criminals are able to use social security numbers that donít even exist yet, biding time until that number is assigned. Studies have shown that a childís social security number is 51x more likely to be stolen than an adults.

How to Avoid Synthetic Identity Fraud

As previously mentioned, synthetic identities can be very difficult to pinpoint because thereís no one to claim fraud or raise a red flag. When the person doesnít exist, a synthetic identity can easily go undetected for months or even years. As a business owner or lender, itís important for you to use several methods of identification to validate a consumer.

Never rely purely on a social security number to confirm an identity. Whenever you obtain a credit report from a new consumer, analyze it closely for signals of potential synthetic fraud and investigate further. Additionally, donít forget to educate your staff about common phishing activities.

To protect your child from becoming a victim, freeze your childís credit to reduce the chances of credit identity theft, if itís an option in your state