Being defrauded by someone is bad enough but at least you can dream of retribution. What if you lost money to a fraudster and discovered that the person never existed! That is one of the fastest growing property crimes and it is called Synthetic Identity fraud. In fact some studies have shown that over 80% of credit card fraud now is due to false identities.

What makes this new fraud so frustrating is that the identity is part real and part false. It provides just enough real information that the criminal can get away with the scheme for a long time. As with most crime it started with individual fraudsters and then evolved into being committed by large criminal enterprises. The FBI reported that one of these enterprises operated with over 7,000 synthetic identities which stole over $200 million in goods. That is over $28,000 in losses per identity.

Here is how it works. The perp usually starts with a real social security number. The best ones are from children that are too young to have already developed a credit file with a credit reporting agency. These social security numbers can come from brokers who sell information obtained during any of the widely reported security breaches of large companies and governments. The criminal then comes up with a name, birthdate, address and telephone number some of which may be false and some may be real. The addresses usually have to be real so that the credit cards and stolen merchandise can be received.

The next step is to get one of the credit reporting agencies (Experian, Equifax, TransUnion) to create an initial credit file for this new synthetic identity. The criminal will request a new store card, new credit card or apply for a personal loan. This request results in the store or bank making a credit inquiry on the customer. The credit reporting agency will attempt to match the identity on the new inquiry with one of the profiles already in their system. If there is no match a new credit file is initiated. Usually this initial credit request is declined by the store or bank because the customer has no credit history. But now a credit history file for the false identity has been created and the journey to successful fraud has begun.

The criminal continues to request credit cards or loans with various companies until finally they are granted a card or loan. Once they have the card (the preferred way to begin) the criminal uses it in a very responsible manner building up a strong credit history and showing that he or she can handle debt well. As this criminal makes purchases and payments he continues to open new cards and loans. In addition the criminal will also leverage this new identity to get drivers licenses and other official identification documents.

Over time the credit rating is strong enough that he may have dozens of cards with high credit limits and he makes the minimum payments religiously. At some point he engages in what is known as a “bust-out” where the perpetrator maxes out purchases and cash advances on each card. The merchandise purchased may be kept, re-sold or returned for refunds but it is free to the fraudster who has no intention of repaying the card balances anymore.

This impacts innocent parties whose social security number has been compromised and may require years of identity repair. If the number belongs to a young child the theft may not be obvious for years until the child is old enough to get a credit card, apply for a part-time job or apply to a college or for financial aid.

Credit reporting agencies are working to identify and stop synthetic identities. They have automated processes to look for mismatches between an actual social security number and names or addresses that are not correct. In addition, they are searching for suspicious patterns of credit behavior that may point to possible synthetic identity fraud.

To protect your children from being a victim you can contact each of the three credit reporting agencies and request a credit freeze on the child’s account. Ask if the child has a credit file already. If not, one will have to be opened and then a credit freeze will need to be requested. This process may be long and arduous since the agency will need you to provide information about your child so they can open and freeze the file. In some cases there may be a charge for this service.

The federal Consumer Financial Protection Bureau has some very good information about protecting you and your family from synthetic identity fraud. Go to and look for the Consumer Tools tab and look under Frauds and Scams (