Warning signs of identity theft can take many forms. For instance, a consumer may receive a credit card or loan offer from an unfamiliar financial institution. Should an underage child receive such an offer, it could be an indicator of identity fraud. Synthetic identity fraud, however, is much harder to spot.
Synthetic identity fraud is a quickly growing, more sophisticated form of fraud that combines real, typically stolen consumer information with false details. In these cases, a real social security number (SSN) is usually paired with a fake name and address. After fraudsters build up credit scores on synthetic identities, they commit what is called “bust-out fraud,” running up large balances and then abandoning the identities. Consumers with little or inactive credit are often the primary targets, particularly the elderly, the deceased and children.
Approximately 1.3 million U.S. children are victims of synthetic identity fraud each year. In many cases, the fraud can go undetected until the child turns 18 and applies for credit. While this is especially enticing to criminals, it can seriously damage a young person’s credit score.
To protect themselves and their children from synthetic identity fraud, consumers should:
- Take advantage of credit monitoring services – Each consumer is entitled to an annual free credit report from one of the following agencies: Equifax, Experian, TransUnion. Consumers should pull their children’s scores at least once every two years.
- Engage an agency that looks for synthetic fraud – LifeLock and Experian’s ProtectMyID, both identity theft protection agencies, specifically monitor for signs of synthetic fraud. Not all reporting agencies do. Many services allow adding children to the parents’ monitoring for an additional fee.
- Go beyond the standard credit reports – Some agencies use fragmented reports. These reports will not catch if a consumer’s SSN is used with a different name. Choose agencies that ensure SSNs match the names associated with them.
Although consumers play an important role in identity theft protection, financial institutions (FIs) do too. FIs should also monitor the pairings of SSNs and names to ensure they match. Additionally, FIs should be wary of new authorized users being added to accounts. This has become a fraudster’s preferred method of building credit on their newly created identity.