Detecting synthetic identity fraud
By Leslie McFadden • Bankrate.com

If someone uses your Social Security number on a credit application, you might not find out about it. Not even if you checked your credit report.

In typical synthetic fraud, a fraudster uses a real Social Security number and combines it with a name other than the one associated with that number. The combination often doesn't hit the consumer's credit report, says Chris Jay Hoofnagle, senior staff attorney to the Samuelson Law, Technology and Public Policy Clinic and senior fellow with the Berkeley Center for Law and Technology at the University of California.

Synthetic fraud is quickly becoming the more common type of identity fraud, surpassing "true-name" identity fraud, which corresponds to actual consumers. In 2005, ID Analytics reported that synthetic identity fraud accounted for 74 percent of the total dollars lost by U.S. businesses to ID fraud and 88 percent of all identity fraud "events" -- for example, new account openings and address changes.

"True-name identity fraud was the prevalent identity theft mode about five years ago," says Steve Coggeshall, chief technology officer of ID Analytics. "Synthetic identity fraud is the dominant mode now."

Synthetic vs. true-name ID fraud

Synthetic ID fraud should not be confused with true-name identity fraud. Real people's identities are assumed in true-name ID fraud, whereas in synthetic fraud scammers create a whole new identity to open a new account. Here are some of the main differences. Creation of new account Effect on victim's credit history Effect on victim's credit reports Creation of new account Synthetic ID fraud True-name ID fraud Combine fake and real consumer information or all false information to open an account. Social Security numbers and/or names might be changed to create new identities. Consumer's real identifying information is used without modification. The fraudster poses as the actual consumer.

Why should you care?
Synthetic identity fraud mainly hurts creditors, but it affects consumers in three main ways.

1. Consumers are partially paying for it. Indeed, creditors do bear the financial burden of fraud losses. Still, they pass some of those costs on to consumers through fees and higher interest rates, says Hoofnagle. "Although it's diffuse, we're talking at least tens of billions of dollars."

2. Debt collectors could come after innocent consumers. There could be a consumer victim if a creditor ignored the fictitious name given and pursued the individual whose Social Security number was used, he says. Collection agencies have the ability to perform "Social searches" on Social Security numbers to find current addresses for delinquent debtors. A Social search will also turn up names associated with that Social Security number, which means innocent consumers could hear from debt collectors.