Synthetic Identity Theft: Definition, Damages & Defense
Synthetic identity theft involves a hacker using a combination of fake and real information to form an entirely new identity.
Real information might be stolen usernames, passwords, or other identifying pieces that are grabbed in data breaches and sold on the dark web.
Hackers combine this stolen information with fake information that can pass standard security checks and then use vital components of your identity to illicitly purchase items or open bogus accounts.
This type of identity theft is the fastest growing financial crime in the United States, costing lenders over $6 billion a year.
How does synthetic identity theft work?
Fake identities made in this type of fraud are most often used to get credit cards or loans. Unfortunately, this can mess with your credit.
The fraudster may not use this fake identity for very long — just long enough to build up a credit history that they can exploit. They may also initially rack up lots of debt or fraudulent charges and then make a synthetic identity using other information, like yours, to pose as the victim of fraud and have their credit restored at your expense.
Here is how a criminal creates and uses a synthetic identity:
- The criminal combines some legitimate information with fake information, often using personal information stolen in data breaches.
- The fraudster uses the new identity to apply for some type of credit. About 50 percent of synthetic identities are used to apply for credit online.
- The criminal will use the fake identity to apply for credit at several institutions until they are approved.
- They will piggyback on another account holder in good standing to get good credit fast.
- Once they have used as much credit as they want, they abandon the accounts.
Thieves using synthetic identities are most likely to commit bust-out fraud. The identity thief typically runs several synthetic identities at the same time, building up responsible credit scores slowly. Then, when they have maxed out their access to credit on one identity, they stop paying the accounts and those become delinquent.
To financial institutions, this does not immediately look like identity theft. Instead, it looks like an average person having normal financial difficulties.
Since children have legitimate social security numbers and no credit score, they are 51 times more likely to be the victims of synthetic identity theft than adults. About 1 million children in just 2017 were victims of this type of fraud.
Synthetic vs. traditional identity theft
Although synthetic identity theft can still have a negative impact on the person whose information is stolen, it is not the same as traditional identity theft.
- Traditional identity theft: Individuals’ personal information, including physical addresses, phone numbers, social security numbers, names (including maiden names), employer information, and dates of birth, is stolen and sold as a complete package. A fraudster can use your full identity to pretend to be you, open accounts in your name that go delinquent, file your taxes to get your refund, or make pur