Texas Trust Family Finances Advice

Family Finances

What is Synthetic Fraud?

Unfortunately, identity fraud is widespread in our day and age. Identity fraud can result in people accessing your bank accounts or loans being written in your name — to name just a couple of the many case types.

Identity fraud is ubiquitous -- whether it’s over the phone by impersonating someone to get your social security number (SSN) or by finding your personally identifying information online.

However, there are types of identity theft that are far more unique, one of them being synthetic fraud.

Understanding Synthetic Fraud

Synthetic fraud is a form of identity theft where the perpetrator combines real and fake information to create a new identity. Instead of getting most or all of your personal and financial information to steal your identity and money, synthetic fraud only requires one piece of information, like your social security number.

With just this one piece of information, a synthetic identity thief can craft a sort of Frankenstein of financial disaster on their victim out of a social security number paired with fabricated data, like a fake address and name. The synthetic identity thief can then make fraudulent purchases and accounts with this information.

Perpetrators may use synthetic fraud for many purposes, including:

  • To take out loans in their name to steal money from creditors.
  • To avoid detection by the government.
  • To aid and protect their criminal business, like drug or human trafficking.
  • To open a credit card account.
  • To build up good credit by paying off small purchases and loans so they can eventually take out a larger loan they never payback.

Detecting Synthetic Fraud

Unfortunately, synthetic identity fraud is difficult to detect because it is more subtle than traditional identity theft. With traditional fraud, you might be alerted by your bank or see purchases under your name that you don’t recognize.

Often, victims of synthetic fraud typically don’t use credit much, like children or the elderly. As a result, they might not detect it until the child grows up and tries to pay for student loans or pay for a car.

Suppose your information links to a fake identity. In that case, you may eventually realize the consequences of the theft — like finding out you have a poor credit score or being unable to take out a loan until there is a resolution.

Many people may not know about synthetic identity linked to their SSN until they take out a loan years later. The financial institutions involved may be unaware of the theft as well. They may see that their credit history was good until they stopped sending in their payments. They might assume the individual has hit financial hardship rather than jumping to conclude that they are using a fake identity.

Protecting Yourself

Online banking and the sheer amount of personal and financial information on the internet has made synthetic fraud easier to commit, and therefore more common. In addition, crucial personal information, such as social security numbers, is available to purchase on the dark web.
Luckily, there are some ways that you can protect yourself and your children from synthetic fraud:

  • Freeze all of your credit. This will stop future credit fraud from happening. However, you may still be unable to prevent false tax filing or an undocumented worker receiving unemployment benefits.
  • Freeze your children’s credit. This will prevent anyone from using your child’s SSN to build credit and take out loans with their SSN.
  • Monitor your credit annually to ensure that your credit score is correct. Request your free credit report at least once per year.
  • Subscribe to an identity protection service. They will offer protection and mitigation against any form of fraud, stopping it before it happens or lessening the consequences of having a stolen identity.
  • Be vigilant and limit the information you share. As an example, avoid sharing your birthday and personal information online.
  • Receiving mail regarding any random government benefits.
  • Limit sharing of your social security number by using alternative methods when organizations ask for forms of identification.

You can resolve the issue by proving you are the actual individual tied to the SSN and not the thief.

Takeaway

While being the victim of synthetic fraud can be very troubling, in the end, you will likely not be liable for the criminal’s purchases and poor credit. It may take some time to freeze your credit reports and accounts and eventually resolve the issue. Still, you should subsequently be able to use your actual credit for payments and loans after you prove your identity.

Please note, information and interactive calculators are made available to you as self-help tools for your independent use and are intended for illustrative purposes only. We cannot and do not guarantee their applicability or accuracy in regards to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.