NEW YORK—Scammers are constructing fake people to get real credit cards—and the practice may pick up due to the recent Equifax breach.
Known as “synthetic identity theft,” the scam relies on creating identities rather than stealing existing ones. Synthetic fraudsters buy stolen Social Security numbers or try to guess numbers not in use, then combine them with a sham identity. Using other people's real addresses, the scammers begin applying for cards, Bloomberg explained.
“Financial institutions usually reject the first requests after seeing that the applicant has no credit profile. But thieves keep applying for cards until a lender eventually opens an account,” Bloomberg said.
Then the long con starts.
“Fraudsters can spend years faithfully paying the monthly bills for the cards, which they may have forwarded to P.O. boxes or their own homes, while watching credit limits tick higher. After an identity is established, they sign up for more cards. When the scheme is ripe, the fraudsters charge everything to the hilt, a phase commonly known as ‘busting out,’” Bloomberg said.
Payoffs can stretch into the tens of thousands of dollars. The identities are then discarded. Barely on the radar a half decade ago, the technique may already account for as much as 20% of credit card loans that go bad, Bloomberg said.
“Synthetic identity theft probably cost banks at least $6 billion in 2016,” Bloomberg noted.