Detecting Synthetic Identity Fraud

By Leslie McFadden

 

If someone uses your Social Security number on a credit application, you might not find out about it. Not even if you checked your credit report.

Why? You could be a victim of synthetic identity fraud -- a rapidly growing type of ID fraud. Thieves literally create new identities either by combining real and fake identifying information to establish new accounts with fictional identities or create the new identity from totally fake information.

In typical synthetic fraud, a fraudster uses a real Social Security number and combines it with a name other than the one associated with that number. The combination often doesn't hit the consumer's credit report, says Chris Jay Hoofnagle, senior staff attorney to the Samuelson Law, Technology and Public Policy Clinic and senior fellow with the Berkeley Center for Law and Technology at the University of California .

Synthetic fraud is quickly becoming the more common type of identity fraud, surpassing "true-name" identity fraud, which corresponds to actual consumers. In 2005, ID Analytics reported that synthetic identity fraud accounted for 74 percent of the total dollars lost by U.S. businesses to ID fraud and 88 percent of all identity fraud "events" -- for example, new account openings and address changes.

"True-name identity fraud was the prevalent identity theft mode about five years ago," says Steve Coggeshall, chief technology officer of ID Analytics. "Synthetic identity fraud is the dominant mode now."

 Synthetic vs. true-name ID fraud

Synthetic ID fraud should not be confused with true-name identity fraud. Real people's identities are assumed in true-name ID fraud, whereas in synthetic fraud scammers create a whole new identity to open a new account. Here are some of the main differences.

 Creation of new account

 Effect on victim's credit history

 Effect on victim's credit reports

 

 Creation of new account

Synthetic ID fraud

True-name ID fraud

Combine fake and real consumer information or all false information to open an account. Social Security numbers and/or names might be changed to create new identities.

Consumer's real identifying information is used without modification. The fraudster poses as the actual consumer.

Why should you care?
Synthetic identity fraud mainly hurts creditors, but it affects consumers in three main ways.

1. Consumers are partially paying for it. Indeed, creditors do bear the financial burden of fraud losses. Still, they pass some of those costs on to consumers through fees and higher interest rates, says Hoofnagle. "Although it's diffuse, we're talking at least tens of billions of dollars."

2. Debt collectors could come after innocent consumers. There could be a consumer victim if a creditor ignored the fictitious name given and pursued the individual whose Social Security number was used, he says. Collection agencies have the ability to perform "Social searches" on Social Security numbers to find current addresses for delinquent debtors. A Social search will also turn up names associated with that Social Security number, which means innocent consumers could hear from debt collectors.

Detecting synthetic identity fraud

 

 

3. Synthetic ID fraud creates file variations at the credit bureaus. The other problem is that synthetic ID fraud creates subfiles at the credit bureaus, says Hoofnagle. The term subfile, says Evan Hendricks, author of "Credit Scores and Credit Reports," refers to additional credit report information tied to a real consumer's Social Security number, but someone else's name. Because the identifying information contains some data that's already linked to a particular consumer, the subfile gets associated with the consumer's main file, or "A" file.

Subfiles can surface when a creditor checking a consumer's credit report asks for all the possible files related to that consumer -- if they want all the files associated with a particular Social Security number.

The problem comes in when negative information gets entered under a subfile that is then linked to, but doesn't actually belong to, you. If you have good credit and derogatory information is going into your subfile, that could negatively impact your ability to get credit, he says.

Variations in credit files are natural
Extra file information is possible because of the way information gets collected and stored at the credit reporting agencies. "The algorithms allow for partial matching so they'll accept a Social Security number that's not exactly the same or a name or address that's not exactly the same as long as enough things match up," says Hendricks.

Yet variations are not always due to the work of fraudsters, says Maxine Sweet, Experian's vice president of public education.

"It's not unusual for a Social Security number to be reported to us that's associated with more than one name," she says. "In some cases it might be an indication of fraud, but in most cases it's just an indication that there were some variations in the data as it was provided to us."

She says variations can occur due to typos; for instance, when a creditor types in the information from an application to request a credit report on a consumer. Two names could also get associated with one Social Security number; for example, when a woman changes her name after marriage.

Fraudsters simply take advantage of these misspellings, typos and other natural variations and cash in on them.

What you can do about synthetic ID fraud
Consumers can employ traditional methods of detecting identity theft: ordering credit reports and checking them carefully for erroneous information and accounts that don't belong to them, and keeping an eye out for suspicious mail.

You also should make sure that creditors, if they deny you credit, based their decisions on your credit file information only.

1. Check your credit reports. First, look for accounts that don't belong and report them to the credit bureaus. Also, watch out for inaccurate versions of your name, address or Social Security number.

While synthetic identity information doesn't always appear on your credit report, "sometimes this stuff will show up," says Hendricks. "It's just case by case. So, it's definitely still a good idea to check your credit report regularly."

2. Watch your mailbox. Look out for suspicious mail, such as change-of-address notices and credit offers with significant variations on your name. Notify the credit bureaus of your correct name. Contact your post office if you didn't initiate an address change.

3. Monitor your Social Security number. "Credit monitoring doesn't help," says Avivah Litan, a vice president and analyst at Gartner Inc., of its ability to detect synthetic identity fraud. Credit monitoring won't catch instances where the fraudster uses a different name, date of birth or address along with the consumer's real Social Security number.

Instead, there are identity monitoring services out there, such as Intelius and MyPublicInfo that will, for a fee, scour the Web, black market and public records for personal and financial information belonging to the subscriber, such as an address, credit card number or Social Security number. Unlike credit monitoring, the service doesn't rely on a Social Security number matching other identifying information.

They're not all-inclusive, cautions Litan, who says they are only 60 percent to 70 percent reliable at the moment. They're only as good as their data sources, she says, so scrutinize the product's description before you buy.

You can also order a free public records report once a year.

To find out if someone is using your Social Security number to obtain employment, you can order your Social Security Statement, which provides a record of the earnings on which you have paid Social Security taxes, online, via snail mail, by calling (800) 772-1213, or by going to your local Social Security Administration office. Call the fraud hot line at (800) 269-0271 if you find earnings you don't recognize.

Consumers cannot find out if another person's consumer credit report is associated with their Social Security number because of privacy issues, Sweet says.

4. Scrutinize credit denial letters. If you get turned down for credit, make sure the decision was based on your file information only. "If they're turning you down and you think there's a possibility they may have gotten the wrong file, look to see if they sent you your letter with all the right identifying information," says Sweet. Follow up with the creditor if the information is wrong and ask them to check your credit again, after they verify your identity, she says.

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