What if you tried to pay for your dinner and your credit card suddenly declined? You check your statement and see dozens of transactions you didn’t make—turns out, the card has hit its credit limit.
Or you try to get a mortgage loan but you find that your credit score is very low. You don’t know why as you’ve never held debt for a long time and always made your payments. You check your credit history and find a list of accounts you’ve never opened with reports of missed payments.
These are the kinds of things that happen when you become a victim of identity theft.
Identity Theft Explained
The crime of Identity theft occurs when someone uses your personal information to impersonate you for their own financial gain.
Common methods include taking out a loan (or multiple loans all at once in the case of loan stacking attacks) or credit card in your name and, according to Experian, account takeovers, tax return theft, synthetic identity theft (where real and fake information is used to create a new identity), medical benefits theft, mortgage fraud, and auto loan fraud. Unemployment benefits, especially in 2020, are a huge target right now, where scammers are using employed people’s identities to steal their unemployment benefits.
The result of identity theft is that you may lose money or access to money (if your tax refund or healthcare benefits were stolen) and you might lose out on future opportunities to take out loans for a mortgage or car because your credit has been destroyed.
Depending on the type of identity theft and who’s involved, recovery can be easy or it can be a long-drawn out process.
Identity Theft Trends
Identity theft is increasing, and, most recently, it’s spiking (check out this real-time visualization published by the FTC). Here are some stats:
- In the first half of 2020. credit card fraud, and government docs and benefits fraud increased the most.
- Employment or tax related fraud are on steep increases since late last year
- Credit card fraud reports doubled from 2019 to 2020, reaching nearly 250,000 cases (this is the highest compared to all types of fraud for 2020).
- Government documents and benefits fraud, and loan or lease fraud reports totaled 80,000+ for the first half of 2020.
- Bank fraud reports totaled over 40,000 cases in the same time frame.
- During the first half of 2020, over 1.8M fraud reports have been recorded.
How likely is it that you become a victim?
Consumer Affairs reports that 7-10% of Americans are victims of identity theft each year and 21% of those who have suffered an attack are likely to suffer another (check out the previous link to see a ranking of states by prevalence of reports).
Age also plays a role. The chart below from the FTC shows the percentages of people across various range ages who reported fraud w/ a loss of funds (the amount lost is a median figure).
While the loss amount tends to rise by age, younger people are more likely to suffer some type of loss. They do not specify why there’s such a discrepancy between funds lost among different age groups, it’s likely that different methods are used to defraud the different age groups – so the young may be victims of credit card fraud more often while the older population suffers more frequently from tax refund fraud, and the amounts are driven by the fraud types.
Types of Identity Theft Losses
Identity theft is used to cause losses to victims in many different ways. Below we look at the most common.
Credit Card Fraud
The most common kind of fraud is where someone obtains your credit card or debit card details and uses them on their own behalf. This happened in 250,000 cases reported from 2019 to 2020 (which sounds like a lot but, there were over 1B credit cards in circulation in 2018).
In these cases, you initially face the consequences, but more credit card companies refund any fraudulent charges so you’re not stuck with those bills. Fraud on debit cards can be harder to recover (there are more rules and limits) which is why it’s always safer to use credit cards, especially with online purchases where the card numbers will be stored and may be stolen in the future.
Benefits Fraud (future financial loss)
Identity theft is often used to help the wrong person collect benefits, such as tax refunds, unemployment benefits, or insurance benefits. The thieves pretend to be you and have the money sent or directed to them. You may not know this has occurred for some time so it can be difficult and complex to recover these lost funds.
Identity theft criminals often use your identity to take out new loans, which they have no intention of paying back. When the loan is delinquent (as in, it’s not paid), you’re likely to find out only when the lender comes to you expecting the loan to be repaid. Depending on what kind of loan and who issued the loan (payday lender, mortgage company, a large back, or a used-car dealer) it can be difficult and time-consuming to recover from this kind of fraud.
Anything that raises your loans or debts outstanding, or creates payments missed (even on accounts that you didn’t know existed) will affect your credit score and your credit history. This can limit your ability to make new purchases or get new loans, or may raise the interest rates you’re asked to pay on existing or new loans.
Preventing Identity Theft?
Identity theft attacks are made possible with information. A scammer or thief can look for your social security number, your full name and address, or credit card numbers. They may also seek information from companies and financial institutions use to verify your identity—details like your past addresses, income level, and date of birth.
Equipped with this kind of info, they impersonate you, and start taking out loans, opening bank accounts, or re-routing a tax refund or other payment that was meant to go to you.
Preventing these kinds of scams starts with securing your information. But in a digital world, this is practically impossible. Your full name, email address, home address, and more is almost certainly easy to find online—via data brokers, people search engines, or on the dark web.
The dark web is brimming with personal information. One report estimated that a social security number cost, on average, just $4 on the dark web. In 2018, the huge Equifax hack that made waves in the media led to 145M social security numbers being leaked.
There are however, other things you can do:
- Minimize the personal information you share. Just because some of your information is already out there, doesn’t mean you should still recklessly give it away. Keep personal information to yourself whenever possible, especially when it comes to information that’s leaked less often, like your social security number, your income level, and your home address. When you’re asked for any of this information by sites that really don’t need it – lie —it will make it harder for scammers to know which information is correct.
- Get your free annual credit report. This should be a yearly tradition. All three credit bureaus offer a free credit report which will show you all the relevant details and activity regarding your credit and credit history. If anyone was making credit inquiries or opening any lines of credit in your name, you’ll find it here.
- Protect your credit card details. eCommerce and other sites often suffer breaches which leak credit card numbers—it takes months or even years for the company to find out, giving hackers ample time to use the stolen data. To minimize the risk of that data falling into hackers’ hands, use a virtual card service like privacy.com, MySudo, or a credit card’s own virtualization service. Apple Pay and Google Pay work well here too.
- Don’t use a debit or bank card online. Even if you don’t want to use a virtual or private card service, we strongly encourage you to avoid using a debit or bank card online. If you ever rack up unwanted charges on a debit card, you’ll have a much harder time trying to recoup those funds as you don’t have the same legal protections compared to credit cards.
- Monitor your credit. Many financial institutions offer credit monitoring services as an add-on or a complimentary benefit (especially credit card companies). These services will let you know when a new account has been opened in your name, when a new inquiry has been made, and if your credit score has changed significantly, with details accounting for the score change. If you can’t account for any of those alerts, look into it immediately. Timing matters when it comes to preventing identity theft.
- Freeze your credit. You can freeze your credit, for free, in order to prevent anyone from opening a new line of credit in your name (this happens by preventing access to your credit report to assess creditworthiness). You can unfreeze whenever you’d like, so there’s little to no downside here. If you do choose to freeze your credit, make sure it’s done on all three major credit bureaus — Transunion, Equifax, and Experian (if you haven’t already, you will have set up your account for these companies).
Note: This is different from a credit lock. A credit lock is easier to unlock and sometimes carries a monthly cost. A credit freeze on the other hand, requires verification to undo (or “thaw”) and is free for all credit bureaus.
- Talk to your employer (preferably the HR department). See if there are any alert or monitoring options available so you can know if any unauthorized individuals are accessing your benefits or personal information.
- Look at your financial statements and transactions. Here’s another way to directly see whether a hacker or scammer is already exploiting your data or finances. Check your monthly bank and credit card statements. If there are charges you can’t account for (or charges made in another state), someone may have access to your funds.
- Use a Personal Data Removal Service. Your data can be removed from many data brokers and people search engines, using a service like Zoro (formerly BrandYourself) and Spartacus. These are very effective and reduce both personal risks (embarrassment or harassment) and crimes like identity theft.
- Get identity theft protection. Identity theft protection offers various significant services depending on the company. This includes various forms of monitoring and alerting services that automates some of the above advice, making it simpler and less time-consuming to keep on top of your different accounts (financial, medical, social) while knowing when your information leaks or is being used elsewhere. This will give you the information needed to take action to prevent identity theft from happening. In case things do go wrong, good identity theft protection should also provide some form of insurance and support in the case of identity fraud. To learn more about identity theft protection as a service, click here.
- Set up an account with your state unemployment office. If you haven’t already (and even if you don’t need to), setting up an account will ensure you’ll be alerted to any activity related to your unemployment benefits. If you start getting emails and alerts—you’ll be able to take action before too much financial damage is done.
To prevent the most common and some of the more impactful identity theft attacks, we recommend putting a freeze on your credit and setting up some kind of alerts or monitoring system for your credit cards. It won’t catch everything but this way, you should be able to catch sketchy transactions before they rack up too many charges and you won’t suffer from various types of loans being opened in your name and destroying your credit.
You should also review your credit history annually and also keep an eye on what communications and mailings you get. If you see something from a bank you’ve never heard of talking about an existing account or a credit card you never applied for, that should raise some huge red flags.
As for other kinds of thefts such as tax refund and benefits, there are fewer actions that outright prevent them from happening. In these cases, identity theft monitoring may help because they have more resources to monitor your different accounts and they’re better prepared to help you if something did go wrong.
Recovering from Identity Theft
So what do you do if you suspect you’ve been the victim of identity theft? First, contact the relevant financial institution and the FTC (using identitytheft.gov) immediately. The FTC will help you investigate and work with you to recover lost funds.
If you suffer from credit card fraud, you’re likely to get your money bank, even compared to debit card fraud because credit card companies are more likely to cover the charge of any fraud as opposed to a bank.
For other kinds of fraud related to healthcare, employment, or auto loan (to name a few) — reach out to the associated company. There may be an existing policy in place and they can work with the FTC to help you remedy and recover from the issue.
The size of your loss and the kind of theft involved weighs on how long it takes to recover from identity theft. If you have to involve the FTC, law enforcement, and other investigative agencies, recovery may take months or even years, depending on how quickly you gather information and file the appropriate paperwork.
If an attack affects your credit or credit history, you would have to reach out to the big three credit reporting agencies and work with them to remove any of the fraudulent cases that would bring your report down. It may take some time and you would have to provide them with evidence and paperwork but, after the process is finished, they’ll remove those entries and your credit history and report will only reflect your history.
If you have an identity theft protection plan, and have any remediation coverage, they’ll be able to help you with specialized resources and will also help you with some paperwork, saving you a lot of time and effort. Many identity theft protection plans also provide identity theft insurance, so you can recover some of the lost funds resulting from the identity theft attack. If you want to learn more about identity theft protection, check out our overview here.