Management consulting company McKinsey names synthetic identity (ID) theft the fastest growing financial crime in the United States. And a LexisNexis Risk Solutions study has found that 20 percent of ID theft losses by banks can be attributed to synthetic versions of the scheme.

If you are unfamiliar with synthetic ID theft, you should know that it is not — as its name might imply — a weaker, less ‘real’ form of fraud. In fact, it tends to be much harder to prevent and detect. That is because all a perpetrator needs to create an identity for criminal purposes is a Social Security number (SSN).

Combining Information

Traditionally, identity theft occurs when a thief gets hold of someone’s personal information and uses it to assume his or her identity. With synthetic identity theft, the perpetrator typically combines real and fabricated information to produce a fictitious identity and then uses it to apply for credit. Alternatively, the perpetrator combines the real personal information of multiple identities. For example, someone could use your SSN with another individual’s name and a third person’s address.

The thief’s initial credit application using the synthetic identity usually is rejected, but credit reporting agencies will generally open a new credit file for the identity. The fraudster can then try again — and stands a good chance of approval. Some card issuers offer small credit lines to applicants with little or no credit history. These ‘starter’ cards can then be used to establish a credit history, paving the way to more lucrative opportunities for fraud in the future.

Affected Credit Files

What is at risk if your SSN is involved in one of these scams? Fragmented files could become associated with your SSN at credit reporting agencies. Because many agencies do not cross-reference SSNs with other identifiers, such as names or addresses, victims may have fragmented files for entirely different identities linked to their main credit files. And credit agencies can take months or even years to clean up negative data from fragmented files. In the meantime, creditors rely on false information.

Experienced perpetrators often seek out SSNs that are not actively used. For example, a thief who incorporates a child’s SSN might not be discovered until the victim tries to apply for student loans or jobs with employers that check credit histories.

Protect Your Identity

As with many types of fraud, you can reduce synthetic ID risk by protecting personal information with difficult passwords and up-to-date security suites. In addition, review your credit reports annually or if you are turned down for credit. If you believe your identity has been stolen and criminals are using it for their own enrichment, contact us for help.