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Criminals using synthetic identities led to huge losses for credit cards in the past couple years according to TransUnion in a new credit analysis. However, there is some good news: the growing trend lost some momentum in the past year.
According to the credit agency, suspected synthetic identity fraud balances jumped 5.2 percent to $290 million in 2017 Q4, up from $276 million in 2016 Q4. During the previous year, balances increased 68.5 percent while synthetic fraud rates remained fairly steady with 0.60 percent of credit card applications in 2017 vs. 0.59 percent in 2016, American Banker reported.
Synthetic identities are defined as fake IDs generated from combining someone’s individually identifiable information with fictional details. One example is a legitimate Social Security number mixed with a fabricated name and address. Financial institutions are typically the primary victims to the exclusion of individual victims and fraud reports.
In addition, when utilizing a synthetic ID, a credit card account is created and used by the fraudster. The bill doesn’t get paid, and the bank has a charge off. A lender’s attempt to collect the debt will typically fail.
Discovering Synthetic IDs
Identifying synthetic IDs is challenging, according to TransUnion. To study this, the agency’s investigation unit examined synthetic identity fraud cases and created a model that can discover behavioral patterns consistent with previously used synthetic IDs, reported American Banker.
From an analysis, several common red flags can emerge regarding the borrower’s credit profile.
“A lot of synthetic identities are created with an age of 25 or older, a time when a person should already have some credit history,” Lee Cookman, director of product strategy at TransUnion, told American Banker.
Another warning sign is a single identity attached to hundreds of addresses. But there are many more potential signs of a synthetic identity.
“No one criterion tells you if it’s synthetic identity or not, but the convergence of multiple factors raises that level of confidence,” Cookman added.
The use of synthetic identities extends broadly. They are also used to obtain auto loans and personal loans as a way for faster and higher-dollar transactions. Outstanding balances of suspected synthetic identity fraud rose 6.6 percent to $885.42 million in 2017 Q4, up from $830.25 million in 2016 Q4. This represents a combination of retail credit cards, vehicle loans, credit cards, and personal loans, according to TransUnion data.
Synthetic Identity Fraud’s Effect on Credit
While synthetic ID fraud is challenging to detect, it is important to check its effect on a consumer’s credit. Here are a few tips from experts.
Frequently check credit reports for errors: It takes longer for synthetic fraud to appear on reports; however, look for unrecognizable aliases on your report – that can be a sign of synthetic identity theft.
Obtain identity theft protection: This helps with spotting synthetic identity fraud, particularly if the service has real-time monitoring and immediately sends out alerts when fraud appears on an account.
Freeze credit reports: Unless applying for an auto loan, a credit card, mortgage, or other financing, consider a credit report freeze. This stops credit bureaus from releasing credit reports without a consumer’s consent. A small freeze fee, set by state law, may be incurred.
Author: Dave Rathmanner
As the VP of Content at LendEDU, Dave regularly plans and writes content to help consumers with their personal finances. Dave’s work has been featured in the Chicago Tribune, Bloomberg, CNBC, US News, Yahoo Finance, NPR, and more.