How to Protect Your Children from Identity Fraud

If, like me, you’re a parent of young children, you know the routines and priorities: feed, bathe, vaccinate, read to, save for college, and choose your toddler battles wisely. But, no matter how young or old your children may be, there’s one important task you should not neglect: freeze their credit.

Why? Child identity fraud is an alarmingly large and growing problem. 

A 2018 report released by Javelin Strategy & Research found that more than one million children were victims of identity fraud in 2017. The widespread damage included:

• Total losses of $2.6 billion
• Families incurring $540 million in out-of-pocket costs
• Targeting of young children - two-thirds of victims were younger than eight years old

As I’ve blogged about previously, synthetic identity fraud is rampant, and fraudsters are growing ever-more sophisticated. Industry estimates attribute around 80% of credit card fraud losses to synthetic identity fraud and child identity theft. (On a clarifying note, synthetic identity creation is sometimes considered first-party fraud, whereas identity theft is considered third-party fraud. Child identity fraud is a combination of both, as described below.)

How Fraudsters Target Children

For many years, fraudsters have exploited the Social Security Numbers (SSN) of recently deceased persons, a technique called ghosting. The American Association of Retired Persons reports that fraudsters use the identities of 2.5 million deceased people to create synthetic identities, which are created when fraudsters pair stolen SNNs with fictitious personal information. It differs from identity theft, in which the personal information of an existing adult consumer is stolen and used by the fraudster to acquire credit.  

Now, rather than combing through public death records to capture SSNs, criminals are targeting those of the youngest Americans. In part, this is due to a change made in 2011 by the U.S. Social Security Administration in the way it generates SSNs. While previously the formatting of SSNs allowed validation of the SSN’s “age” as a sanity check to legitimate inquiries, the new process, called randomization, allows fraudsters to exploit dormant SSNs, e.g., those of children born after the change took effect.

Identity thieves take a child’s SSN and use it alongside a fictitious name, address, phone, and birthday to apply for credit and open accounts – essentially creating a fabricated or compilated identity known as a synthetic ID. Randomization also makes it harder for financial institutions to verify legitimacy, as the first five digits are no longer indicative of the holder’s birthplace, as was the case in the former SSN numbering convention. It’s the basis of a scheme that is pristine, according to Jason Kratovil, executive director of the Consumer First Coalition, because: 

“Since this is a child’s SSN paired with made-up information (although only the criminal knows this), no file can be provided to the bank, likely leading to a declined application. However, as is the process by which many consumers become credit-active, this inquiry triggers the creation of a file at the credit reporting agency, but with the fraudulent information. Thus, a ‘synthetic’ identity is born.”

Children’s identities are a perfect target because a SSN is required by the IRS for parents to claim their newborns as dependents. While most Americans get their SSN at a very early age, there is no logical reason to check children’s credit scores, so any fraud perpetrated against these victims is typically undetected until they turn 18, leaving them with massive debt before they've even reached voting age.

Why Should Parents Care, and What Should They Do

Child identity fraud should be a concern for parents because when it occurs and goes undetected until your child reaches adulthood, he or she may be unable to get a loan, rent an apartment, or engage in other essential financial activities. Here’s what you can do now:

• Check your child’s credit: The Federal Trade Commission recommends, “It’s a good idea to check whether your child has a credit report close to the child’s 16th birthday. If there is one –– and it has errors due to fraud or misuse –– you will have time to correct it before the child applies for a job, a loan for tuition or a car, or needs to rent an apartment.” Here’s how to check your child’s credit report.
• Freeze your child’s credit: Law requires credit bureaus to offer free credit freezes for adults and children under age 16. Here’s how you can freeze your child’s credit.
• Take action if you suspect fraud: The Identity Theft Resource Center provides several warning flags for child identity fraud, including:
  • Calls from collection agencies, bills or credit cards sent to your home in your child’s name.
  • A child receiving preapproved credit card applications, or government notices related to taxes, benefits or even traffic violations.
  • A child having a bank account application denied because of poor credit history.
  • The mere existence of a credit report in the child’s name.

AnnualCreditReport.com, an official website affiliated with the Consumer Financial Protection Bureau, outlines steps to take if you suspect fraud involving your child’s identity. Such steps include alerting all three credit reporting agencies, filing a police report and filing a complaint with the Consumer Financial Protection Bureau. You also can file a complaint with the FTC, and call the Identity Theft Resource Center at 888-400-5530.

What Can Banks Do?

What if you're a bank, and want to help your customers prevent this kind of fraud? Check out my article in the BankThink section of American Banker.

In addition to being a mom, I fight fraud every day in my role as leader of FICO’s Fraud Product Marketing and Portfolio Strategy. Follow me on Twitter @lizfightsfraud.