The Long-Term Impact Of Identity Fraud: Can It Be Prevented?

The impact of frauds such as identity theft is profound, lasting from anywhere between a couple of days or several years. It all depends on what information was stolen, how quickly the victim realized it, and how well the issue has been addressed.

In 2020, identity fraud cases reported to the FTC surged to 1,387,615 – a tripled amount compared to 2018. To commit identity fraud, thieves gain access to unauthorized and confidential data. Once this is done, they use it to carry out numerous other crimes. This is why it is essential to know what identity fraud is, how it can affect you, and more importantly, what you can do to prevent it.

Understanding the Working of Identity Fraud

Identity fraud occurs when a fraudster utilizes another individual’s personal data to commit a scam. For example, a lost passport, a stolen ID card, or even a discarded water bill can be used by the criminal as proof of address or identity, enabling them to open fraudulent bank accounts.

Identity details are often stolen by criminals through company database hacks, successful phishing attempts, fraudulent email scams, discarded utility bills or letters, computer hacks, and much more.

What is the Stolen Data Used For?

Once a fraudster has gained access to sensitive data, they can use it to carry out the following activities:

  • Open fraudulent bank accounts using fake documents
  • Get issued credit cards, apply for faulty loans, or exploit state benefits
  • Order products and services online in the victim’s name
  • Take over the victim’s existing financial accounts
  • Acquire legitimate documents such as a driver’s license or a passport under the victim’s name
  • Combine the stolen data with false information to commit synthetic identity theft

Can Victims Find Out They Have Been Targeted?

If the stolen data is fused with fake information, the resulting fraudulent identity becomes considerably difficult to detect. In case you have become a victim of identity fraud, you may only realize it after receiving bills for products or services purchased online or when you receive letters from credit card companies questioning your credit report. Other instances can include:

  • Your utility bills go missing or errors appear on your payment account
  • You encounter phone calls from debt collectors regarding loans that you never applied for
  • Your medical coverage appears to be fully used up despite you never using it
  • Rejected tax filings
  • You receive calls or emails about your elderly parent’s or children’s accounts that you never made
  • You’re denied loans based on a suspicious credit history

The Impact of Identity Theft

Depending on the kind of theft that has taken place, identity fraud can have disastrous effects. These include but are not limited to:

Damaged Credit

Suppose an identity thieve steals your Social Security Number (SSN), uses it to open a new bank account, or issue a credit card. When the debt is never paid back to the bank, it can potentially ruin your credit history.

Ruined credit history has various long-term impacts, ranging from higher interest rates from banks, reduced loan options, and difficulty in finding housing plans and facilities. In other cases, it can also be used against you while searching for a job, applying for state benefits, or insurance premiums.

Tax Debt

If an identity thief uses your SSN on job applications and does not pay the mandatory taxes, it could build up hefty bills under your name. It is also possible for a fraudster to file a tax return in your name to acquire fraudulent refunds. In this case, the victim would be left to deal with the consequences, while the criminal is left undetected.

A Criminal Record

Criminal identity theft takes place when an individual caught or arrested for a crime portrays themselves as another individual by using their name or other Personally Identifiable Information (PII). As a result, the criminal record is cited under the victim’s name who might not even be aware of it until the damage is done.

To commit criminal identity fraud, the culprit can provide a picture-based identification — either legitimate or counterfeit — or simply bypass identity verification by authorities via fake documents, stolen driver’s licenses, or discarded ID cards.

Combating Identity Fraud

For individuals that aim to safeguard themselves against identity fraud, the following tips can be implemented:

  1. Immediate cancellation of discarded or stolen plastic cards (e.g. credit or ID cards)
  2. Shred bank statements, utility bills, and other confidential documents prior to discarding them
  3. Use strong passwords for online accounts and always opt for two-factor authentication (2FA)
  4. Keep a regular check on your credit score
  5. Alert the responsible authorities in case any suspicious activity has been detected

An established business or startup can utilize two services, in particular, for identity theft protection. These include:

Biometric Technology

Biometric identity verification can be employed to validate customers in real-time through an analysis of their facial features. Automated identity verification software can easily detect fraudsters, spoof attempts, video replays, and other such tactics used by criminals that may be trying to open new bank accounts using fake identity details.

ID Document Verification

Document verification software backed by AI models has the ability to weed out illegitimate, modified, or false documents. This is done by automated data extraction through Optical Character Recognition (OCR) technology. Once the data has been extracted, numerous authenticity checks are carried out to detect any signs of forgery, tampering, or false information. As a result, only legitimate customers are onboarded.

Pranab Bhandari is the editor of personal finance blog "financebuzz!". Apart from managing is blog content he has contributed to many national and international publications. He has expertise in writing finance,business and markting.