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Resources > Identity Protection > Synthetic Identity Fraud—Everything You Need To Know

Synthetic Identity Fraud—Everything You Need To Know

Synthetic identity fraud is the fastest-growing financial crime that causes massive financial losses—estimated to be in the billions annually. According to a 2023 study by Javelin Strategy & Research, a synthetic identity fraud victim in the U.S. lost an average of $13,000 in 2022. Victims of synthetic identity fraud often don’t find out about the crime until years later when they apply for a loan or service and are declined due to fraudulent activity on their credit report. In this comprehensive guide, we’ll discuss what synthetic ID fraud is, how it happens, and what steps you can take to help prevent becoming a victim.

What Is Synthetic Identity Fraud?

Synthetic ID theft involves creating an entirely fake identity using a combination of real and fabricated information. Criminals often use stolen Social Security numbers (SSNs), typically belonging to children or deceased individuals, and combine them with fake names, addresses, and other personal details to create a new persona.

Once they’ve created a fake profile, identity criminals can apply for loans, credit cards, and lines of credit. They may make some payments to build credit before maxing out the accounts and abandoning them. Here are quick facts about this type of fraud:

  • Victims of synthetic ID fraud often don’t discover the crime for months or years until they’re denied credit or a job due to poor credit scores
  • Criminals can create dozens of phantom identities to defraud banks and creditors
  • It’s estimated that synthetic fraud causes over $1 billion in losses each year in the U.S. alone

How Does Synthetic Identity Theft Work?

Pieces of jigsaw puzzle in hands

Creating a synthetic identity is a complex process that starts with stealing personally identifiable information (PII). Here’s how it happens:

  1. Gathering stolen PII
  2. Building a profile
  3. ‘Busting out’

Gathering Stolen PII

There are a number of ways that criminals can obtain the information they need to commit synthetic identity fraud, such as SSNs, names, addresses, dates of birth, and more. Some common methods for stealing this data include:

  • Data breaches—When companies have security breaches exposing customers’ PII, identity criminals can scoop it up for fraudulent activities
  • Phishing schemes—Identity criminals may try to trick people into entering their PII on spoofed websites or via scam phone calls and emails
  • Buying from the dark web—Stolen PII is frequently sold on dark web marketplaces, allowing criminals to buy identities in bulk for malicious purposes
  • Stolen wallets or documents—Physical theft of wallets, purses, or documents that contain personal information can compromise SSNs

Building a Profile

With stolen PII, criminals create a basic identity profile. But they need more details to open accounts, so they do the following:

  • Flesh out the profile by generating additional fake PII, such as phone numbers, email addresses, employment information, and more
  • Create a synthetic identity by combining real and fake PII or fully fabricating an identity from scratch
  • Build credit history for the new identity to make it seem legitimate. This is done by taking out small loans and paying them off or adding the identity as an authorized user on someone else’s credit card account
  • Use address verification services to ensure the identity has a confirmed address. Criminals will set up mailboxes or use vacant properties to create mailing addresses linked to their fake identity

‘Busting Out’

With a complete, realistic profile and a manufactured credit history, the criminal is ready to open accounts and take out substantial loans, leaving victims with unexplained debts. The deliberate and destructive stage where the identity criminal takes advantage of the established credit history to access more credit and then defaults on the obligations, causing financial harm to the affected institutions, is known as busting out.

Which Population Is Most Often the Victim of Synthetic Identity Theft?

When it comes to synthetic identity theft, certain populations are targeted more often than others. Children, seniors, and deceased people are at the highest risk of becoming victims of this type of fraud.

Synthetic ID Fraud TargetsReasons They Are at Risk
ChildrenChildren are an attractive target because they often don’t have an existing credit history. This makes it easier for identity criminals to create an entirely fake identity using a child’s personal information like their name and SSN. Children’s credit reports aren’t usually monitored for many years, so synthetic identity theft using a child’s information can go undetected for a long time
SeniorsOlder people may be less familiar with technology and online security, making it easier to steal their personal details. Seniors also tend to have more established credit histories, making them a more lucrative target for identity thieves
Deceased peopleAfter someone dies, their family may not notify government agencies and creditors right away. Scammers exploit this delay by using the SSN of the deceased person to illegally apply for benefits, file taxes, and obtain credit cards or loans. Since government records still show the person as alive, this “ghosting” scam can go undetected for years

Synthetic Identity Fraud Examples

The rise of technology and online activity has led to a surge in synthetic identity fraud cases. The biggest synthetic ID ring discovered so far caused banks to lose a staggering $200 million. This was due to the creation of 7,000 synthetic IDs and the acquisition of 25,000 credit cards.

Another notable example involves four men in Florida who were recently charged with bank fraud after allegedly stealing a whopping $24 million from the government COVID relief program. Prosecutors say the men used fake identities and shell companies they had previously set up to receive millions of dollars from the program.

Fraud rings don’t rely on just one fake identity—they create multiple personas. In most cases, the lenders get stuck holding the bag because they handed the funds to the criminals who were using made-up identities. Individuals can become victims too if identity criminals use their information as part of a fake identity.

The Impact and Cost of Synthetic ID Fraud

Broken piggy bank isolated on white background.

The rise of synthetic identity fraud poses a significant threat to businesses and consumers alike. For businesses, synthetic identity fraud results in substantial financial costs. Losses from fraudulent applications and charges can run into millions for large companies. 

For individuals, synthetic fraud can seriously damage their credit reports and scores. Victims are often unaware they’ve been targeted until they apply for a loan or credit card and find irregularities on their credit report. Resolving synthetic ID fraud cases can be a lengthy and frustrating process for victims trying to prove their innocence and restore their good credit standing. Victims may also experience additional problems, such as:

  • Identity theft 
  • Employment fraud 

Government agencies and law enforcement are struggling to keep up with the rise in synthetic identity fraud. Criminals are employing more sophisticated techniques using artificial intelligence and machine learning to generate synthetic identities at scale. International fraud rings also target companies from abroad, complicating investigations and prosecutions.

How To Report Synthetic Identity Theft

If you suspect you’re a victim of synthetic ID fraud, here are the steps to take:

  1. Place a fraud alert on your credit reports—Contact the three major credit bureaus—Equifax, Experian, or TransUnion—and place a fraud alert on your file. This will make it harder for identity thieves to open new accounts in your name
  2. Close any fraudulent accounts—Contact any companies where fraudulent accounts have been opened to report the identity theft and close the accounts. Request that they not pursue you for any associated charges or debts
  3. File a complaint with the Federal Trade Commission (FTC)—You can file an identity theft report online at IdentityTheft.gov or by calling 1-877-ID-THEFT(438-4338). The FTC will send you an identity theft affidavit to complete and return, along with copies of supporting documents
  4. File a report with law enforcementFile an identity theft report with your local police department. A police report can help you deal with creditors and correct your credit reports
  5. Dispute fraudulent information on your credit reports—Contact the credit bureaus after filing a police report to dispute any fraudulent accounts or inquiries on your credit reports. Provide a copy of the police report as proof
  6. Monitor your credit reports and financial accounts—Regularly check your credit reports and bank/credit card statements for any suspicious activity. Consider placing a credit freeze on your files to prevent criminals from opening new accounts 

How To Prevent Synthetic Identity Fraud

Taking proactive steps to prevent synthetic identity fraud can protect you from financial and legal issues. Here are some ways you can help prevent synthetic identity fraud:

  1. Monitor your credit reports
  2. Avoid oversharing online
  3. Shred financial documents
  4. Use strong passwords and two-factor authentication
  5. Place a fraud alert or credit freeze
  6. Be wary of phishing scams
  7. Sign up for identity theft monitoring and protection services

Monitor Your Credit Reports

Regularly checking your credit reports is one of the best ways to spot synthetic identity fraud early. The fraudulent activity may first appear as errors or items you don’t recognize on your reports. Carefully review your reports from all three major bureaus to catch these signs on time.

Avoid Oversharing Online

Limit the amount of personal information you post on social media and other sites. Don’t post your full name combined with your birthdate, address, phone number, or other details. Limit what you share on professional networking sites, too. The more information criminals have, the easier it is for them to impersonate you.

Shred Financial Documents

Shred documents containing sensitive information before throwing them away to prevent them from landing in the wrong hands. This includes account statements, credit card offers, insurance forms, pre-approved loan applications, and anything else with your personal information. A cross-cut shredder will destroy documents into small pieces that are difficult to reassemble.

Use Strong Passwords and Two-Factor Authentication

Create strong and unique passwords for all your online accounts. Make passwords at least 12 characters long and include a combination of upper and lowercase letters, numbers, and symbols. Don’t reuse the same password across multiple accounts, and enable two-factor authentication as an extra security step. These measures will make it harder for hackers to access and misuse your personal details.

Place a Fraud Alert or Credit Freeze

A fraud alert notifies creditors to take extra steps to verify your identity before opening new accounts. This makes it harder for thieves to open new accounts in your name. Meanwhile, a credit freeze locks your credit report, preventing anyone from accessing it without your permission. Either option can help prevent synthetic identity fraud.

Be Wary of Phishing Scams

Phishing emails, texts, and calls attempt to trick you into sharing personal details like passwords, account numbers, and SSNs. Never provide this information without verifying the request first. Legitimate companies won’t ask for this information via email or text.

Sign Up for Identity Theft Monitoring and Protection Services

With synthetic ID fraud wreaking havoc in the financial sector, you should do everything in your power to protect your PII. Children are especially vulnerable because it can take years before you realize their SSN has been compromised. By signing up for identity theft protection services like FreeKick, you can fortify your defenses against this sophisticated form of identity theft.

FreeKick provides round-the-clock surveillance and early detection of suspicious activities involving your personal data, including SSNs. With statistics showing that a child’s identity is stolen every 30 seconds, the need for comprehensive protection can’t be overemphasized.

FreeKick—Comprehensive Identity Fraud Protection for Your Loved Ones (Coming Soon)

Powered by Austin Capital Bank, FreeKick combines a regular deposit account insured by the FDIC up to $250,000 with features designed to help protect your family’s identities and build a strong credit history for your child. The account comes with identity theft monitoring for up to two adult parents and six children ages 0 to 25.

Identity Protection Services

When you sign up for an account with FreeKick, you gain access to a suite of features that can help protect your identity, including:

Services for Adult Children and ParentsServices for Minor Children
Credit profile monitoring
Social Security number monitoring
Dark web monitoring for personal information
Up to $1 million identity theft insurance
Full-service white-glove concierge credit restoration
Lost wallet protection
Court records monitoring
Change of address monitoring
Non-credit (Payday) loan monitoring
Free FICO® Score monthly
FICO® Score factors
Experian credit report monthly
Credit profile monitoring
Social Security number monitoring
Dark web monitoring for children’s personal information
Up to $1 million identity theft insurance
Full-service white-glove concierge credit restoration
Sex offender monitoring—based on sponsor parent’s address

Parent-Sponsored Credit Building

Besides keeping an eye on your family’s personal information, FreeKick also helps establish a good credit history for teens and young adults aged 14 to 25. Having a good credit score can potentially save your child over $200,000 during their life.

Starting early means their credit score will improve steadily as they make on-time payments. This will make it easier for them to get loans, credit cards, and other financial products later on when they’re no longer minors. Accessing credit as a young adult can be challenging, but FreeKick offers a simple solution that boosts your child’s financial future. Here’s how it works:

  1. Create an Account—Visit FreeKick.bank and choose a plan that fits your budget to activate your account. You can initiate your child’s credit building process from your FreeKick dashboard. Upon reaching legal age, your child can enable credit reporting, and FreeKick will automatically report their credit information to the three credit bureaus—Equifax, Experian, and TransUnion
  2. Set It and Forget It—After activating your account, FreeKick creates a 12-month credit history for your child by providing a no-interest credit builder loan that’s repaid using the deposit
  3. Keep Growing—After 12 months, you can renew your account for another term and continue building your child’s credit profile or terminate it and receive a 100% refund of your initial deposit

FreeKick Pricing

Protecting the identities of your entire family should be easy and affordable. FreeKick provides family identity protection plans that fit your family’s unique needs and budget and are FDIC-insured up to $250,000.

FDIC-Insured Deposit AmountCost
$3,000$0 (Free)
$1$149/year

Safeguard your family’s sensitive data from synthetic ID theft while building a solid credit history for your children—sign up for FreeKick today.