What is Synthetic Identity Theft: Meaning & Prevention
Synthetic identity theft is a fraud where the fraudster create a new identity by combining fake & real information. To know more about synthetic identity fraud, click here!
What is synthetic identity theft?
Synthetic identity theft occurs when someone uses your real identity to commit fraud. The most common type of synthetic identity theft is when someone uses your information to open a new credit account in your name.
Synthetic identity theft also occurs when someone uses your existing credit report and credit score to apply for new credit, loans, or other financial products. It can affect your credit score and ability to get new credit and make payments on the remaining debt.
Synthetic identity theft can also occur when someone steals your identity and uses your information to commit certain types of crimes, such as identity theft, fraud, or tax evasion. In many cases, the thief will not be successful at carrying out these crimes, but they will be able to access your information, which can seriously impact your financial well-being.
How does synthetic ID fraud work?
Here is how it works: criminals create false identities using real or made-up information and then use these identities to open new accounts or lines of credit.
One of the most common ways of using synthetic ID fraud is to open new credit card accounts. With a new credit card account, the fraudster can rack up large amounts of debt, ruining the victim's credit score and financial reputation. The victim may not even know their identity has been stolen until they are hit with a huge bill or their credit score plummets.
Another way to use synthetic ID fraud is to apply for loans in the victim's name. It can have devastating consequences, as the victim ends up with a large debt and may have their home foreclosed on if they cannot make the loan payments.
Synthetic ID fraud is also used to commit tax fraud. The fraudster can file a false tax return and claim a refund in the victim's name using a fake identity. It can leave the victim on the hook for thousands of dollars in back taxes, penalties, and interest.
If you think you may be a victim of synthetic ID fraud, it is important to act quickly. Contact the credit bureaus and file a fraud report. You should also close any accounts tampered with or opened fraudulently.
How does synthetic ID fraud affect people?
If someone uses your fake identity to open a new account or commits fraud, you will pay more than you originally owed. It is because lenders must look at your entire credit history, including your debt and credit score.
If someone uses your fake identity to apply for a loan and has the loan appear on your credit report, your lender will consider this debt, affecting your credit score. If someone uses your fake identity to access your existing accounts and make purchases, you may have to pay for the bogus charges, or your accounts could be closed or turned over to collections. It is especially concerning for people who have open lines of credit.
Ways to protect yourself and fight synthetic ID fraud
Here are some ways to protect yourself from synthetic ID fraud:
Use strong passwords: Make sure you have strong passwords for all your online accounts. Your password should include capitals, numbers, symbols, and spaces, and make sure they are unique to each account.
Monitor your credit reports: When someone opens new accounts or requests new credit in your name, the credit card company will usually notify you immediately in case of any unusual activity.
Keep track of your bank account information: Make sure you keep track of your bank account's routing and account numbers. This way, you can try to stop any fraudulent transactions from being processed.
Maintain confidentiality: Be careful about sharing bank account information. If you have control over who can access your bank account, consider changing the passcode on your account so that only you can gain access.
Report any suspected identity theft: If you think someone has opened a new account in your name, report it to the police. Once caught, they will have difficulty opening new accounts under your name.
Never share credentials over the phone/email: Be careful about allowing people to access your accounts over the phone. If you have to let people access your account, make sure they know that you have to approve any transactions.
The synthetic identity fraud problem is far from solved and will likely get worse before it gets better. Until the government agencies start doing a better job of catching these criminals, you'll need to rely on proactive measures, as mentioned.
With time, artificial intelligence will help solve some of the problems inherent in synthetic identity detection. As more and more people adopt the use of blockchain, synthetic identities will become less common. And with stricter regulation around who can create and use these new fakes, it will be harder for them to succeed.