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Identity Theft

The fraudulent use of an individual’s personal information to achieve financial gain

What is Identity Theft?

Identity theft is a term that describes any type of crime wherein one or more individuals wrongfully access and use another’s personal information in fraudulent and/or deceptive ways. The goal of identity theft is to obtain financial gain illegally.

 

Identity Theft

 

Summary

  • Identity theft is the fraudulent use of an individual’s personal information to garner some type of financial gain.
  • Identities are most commonly stolen by individuals with a close connection to the victim or through the sophisticated use of technology.
  • Staying vigilant, closely watching credit accounts, and setting up alerts can help guard against identity theft.

 

Understanding identity Theft

Various financial crimes can be accomplished when an identity thief collects enough personal information about an individual. Essentially taking over another person’s identity makes it possible for the thief to – among other things – engage in the following illegal acts:

  • Withdraw money from the individual’s bank and/or investment accounts
  • File fraudulent applications for credit cards, debit cards, and loans
  • Gain access to goods and services that would be otherwise denied if the thief used his or her real name/information

 

There are clearly immediate and severe consequences for the victims of identity theft, such as leaving them without the money or access they need to take care of basic bills like car payments or rent/mortgage payments.

Additionally, there are often excessively long-term consequences, with victims being subjected to months or even years of damaged reputations and trashed credit. It often takes substantial time and effort for a victim of identity theft to eliminate or correct false and damaging financial information about themselves resulting from identity theft.

 

How Identities are Stolen

There are a variety of ways identity thieves operate. The sad reality is that, in many instances, identity theft is perpetrated by someone close to the victim. The thieves either live with or work closely with their victim. It means the thief has a working knowledge of how his or her victim lives, knows extensive personal information about the victim, and may have access to the victim’s personal information (e.g., by having access to the victim’s computer).

In other cases, an identity thief relies on digging through their victim’s life from a greater distance. Once a thief determines how the intended victim operates from day to day and learns more about where and how the victim disposes of sensitive information, he or she can begin stealing information. Items such as old utility bills, credit card statements, voided checks, or even expired credit cards can offer the thief everything he or she needs to steal the target’s identity.

However, in recent years, the most commonly used avenue for identity theft is the internet. For example, there have been several notable instances where “hackers” were able to access the databases of large retail companies, thus also gaining access to the personal information – such as credit card or bank info – of hundreds of thousands of consumers.

Some highly skilled identity thieves may hack the hard drives of computers that have been discarded or stolen. The hard drives often contain the previous computer owner’s personal information – date of birth, banking information, etc. – or can provide other information (such as online passwords) that enable thieves to access such information through other online routes.

 

Types of Identity Theft

While the goal of identity theft is almost always some sort of financial or personal gain, there are different types of identity theft, usually categorized by the type of data stolen. The following are the major categories in which identity thieves seek to plunder:

  1. Medical – An individual takes another’s personal information to garner free healthcare.
  2. Social Security – In the United States, an individual’s Social Security number provides identity thieves with easy access to things such as loans and credit cards; the victim is usually left on the hook for outstanding unpaid balances.
  3. Synthetic – An identity thief uses a combination of fake information and real, stolen information to create a brand-new identity, which the thief then uses to open accounts and make purchases. In these instances, the primary victims are often credit-providing companies and lenders – the thief borrows large amounts of money and, of course, never makes any repayment to the lenders.
  4. Tax – An individual uses another’s Social Security number or other personal information to file fraudulent state and/or federal tax returns, allowing the thief to collect tax refunds illegally.
  5. Child – Child identity theft can be used in several ways – to avoid legal consequences, open accounts, make fraudulent purchases, or even to acquire employment or a residence.

 

The Cost of Identity Theft

The Consumer Sentinel Network – run by the U.S. Federal Trade Commission (FTC) – is responsible for keeping track of fraud and identity theft complaints. In 2019, over three million cases of fraud and/or identity theft were reported by federal, state, and local law enforcement agencies.

The total economic and financial cost of these cases is staggering. By stealing identities and fraudulently making purchases and receiving services, identity thieves cost their victims nearly $2 billion annually in the U.S. alone.

 

Guarding Against Identity Theft

There are a variety of key steps that you can take to guard yourself against identity theft. The following are among the most effective protective and preventive measures:

 

1. Strong passwords

Use a password manager to develop and store complex passwords that are unique to each account. Also, using two-factor authentication via an authenticator app helps keep your passwords and online access to financial accounts safer.

 

2. Credit freeze

Restrict access to your credit records with Experian, Equifax, and TransUnion, the big three credit bureaus. It means no new credit accounts can be opened in your name without your personal authorization, and you will be notified of any attempts by others to open new credit accounts.

 

3. Set up alerts

Ensure that any financial institution you use is sending you some form of alerts regarding each purchase or transaction you make – you receive a text and/or email used to confirm when/where you’re using your credit or debit cards. It is one of the most effective ways to stop identity theft before it happens or to be at least alerted to it very quickly.

 

Learn More

CFI is the official provider of the global Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to help anyone become a world-class financial analyst. The following CFI resources will be helpful in furthering your financial education and advancing your career:

  • Credit Rating
  • Fraud Triangle
  • Cash Larceny
  • Social Security

Financial Analyst Certification

Become a certified Financial Modeling and Valuation Analyst (FMVA)® by completing CFI’s online financial modeling classes and training program!