What Sets Synthetic Identity Theft Apart From Other Forms?

Identity theft involves the unauthorized use of another person’s identifying information, such as a name, Social Security number, or credit card number, to commit fraud or other crimes. Newer, more intricate forms continue to emerge, presenting evolving challenges for individuals and financial systems. Synthetic identity theft represents one such growing threat, distinguishing itself through its unique method of construction and execution.

The Nature of Synthetic Identity Theft

Synthetic identity theft involves creating a new, fabricated identity by combining real and fictitious information. This often begins with a legitimate Social Security Number (SSN), frequently obtained from individuals less likely to have established credit histories, such as children, the elderly, or those with limited financial activity. Alongside this real SSN, fraudsters invent or manipulate other personal details, including a name, date of birth, and address, to construct a seemingly plausible new persona.

The process of building a synthetic identity is a long-term endeavor. Fraudsters use this newly assembled identity to open initial accounts, often starting with low-limit credit cards or checking accounts. They then meticulously manage these accounts, making small transactions and consistent payments to cultivate a positive credit history and improve the synthetic identity’s credit score. This allows the fabricated identity to appear increasingly legitimate, gaining trust from financial institutions and qualifying for higher credit limits.

Contrasting Synthetic with Traditional Identity Theft

Synthetic identity theft differs from traditional identity theft in its core mechanism. Traditional identity theft involves stealing an existing, complete identity and using it for immediate fraudulent transactions, such as making unauthorized purchases or opening new accounts in the victim’s name. The fraudster impersonates a real person to exploit their established financial standing.

In contrast, synthetic identity theft creates a wholly new identity. In traditional identity theft, there is a clear, identifiable victim whose established accounts are compromised. With synthetic identity theft, the initial “victim” might be an individual whose SSN was used but who remains unaware for years because no existing financial accounts are directly accessed or drained.

Traditional identity theft often aims for quick financial gain, leading to immediate fraudulent charges or account takeovers. This fraud is typically discovered when the true victim notices suspicious activity or receives unexpected bills. Financial institutions and law enforcement can then trace the activity back to a specific, real individual whose identity was stolen.

Conversely, synthetic identity theft is a long-game strategy. The fraudster patiently builds a credit profile for the non-existent identity before ultimately “busting out” by maxing out credit lines or taking out large loans with no intention of repayment. This patient approach makes synthetic identities appear creditworthy to automated verification systems, allowing them to bypass many initial fraud checks. Discovery often occurs when the fabricated identity defaults on significant debts, leaving lenders with substantial losses.

The intent behind these two types of fraud also diverges. Traditional identity theft aims to exploit an individual’s existing credit history or financial resources. Synthetic identity theft, however, aims to construct a new, clean credit history from scratch. This newly built financial facade then serves as a platform for obtaining credit and goods that would otherwise be unattainable.

Unique Challenges in Detection and Remediation

Synthetic identity theft presents unique difficulties for detection and remediation. Fabricated identities can often bypass conventional fraud detection systems. Because synthetic identities are cultivated over time, they develop what appears to be a legitimate credit history, including on-time payments, making them seem like low-risk applicants to automated verification systems. Financial institutions and credit bureaus, relying on historical data, may struggle to identify these inconsistencies immediately.

For the individual whose Social Security Number (SSN) is used, discovery can be delayed for years. The affected individual, particularly if a child or having limited credit activity, may not realize their SSN has been compromised until they attempt to establish credit, apply for student loans, or seek employment. At that point, they might find a “fragmented credit file” where their legitimate SSN is associated with a phantom credit history, including delinquent accounts or unpaid debts.

Remediating the effects of synthetic identity theft is complex for financial institutions and the individual whose SSN was used. Financial institutions face significant losses, as the “person” who incurred the debt does not truly exist, making collection efforts futile. The lack of a clear, identifiable victim means these schemes can operate for extended periods without raising immediate red flags, allowing fraudsters to accumulate substantial debt before disappearing.

The process for individuals to clear their name can be arduous and time-consuming. They must often prove to credit bureaus and lenders that the accounts linked to their SSN were not opened by them, a task complicated by the fact that some information used in the synthetic identity is real. This can involve extensive communication with credit reporting agencies and financial institutions to dispute fraudulent entries and correct their records. The systemic nature of synthetic identity fraud requires enhanced collaboration among financial entities, government agencies, and credit bureaus to share information and develop more sophisticated detection methods.