How to Spot 5 Red Flags That Appear on Most Synthetic Identities

Types of First-Party Fraud

Synthetic identity fraud involves creating legitimate-looking credit profiles tied to nonexistent individuals. Here’s what to look for:

How does synthetic identity fraud work?

There are a few different ways bad actors use synthetic identities to commit fraud, but they all generally rely on creating wholly or partially spurious credit profiles that can trick potential lenders into making loans that will not be repaid.

Synthetic fraudsters understand that with the right combination of some key identifiers, credit bureaus are not able to match them to a prior history. So, a brand new credit file is created with that brand new identity.

There are some simple ways that you can identify some of the red flags that exist when these brand new credit files are created.

Let’s take a look at what to look out for.

#1 Red Flag – The Credit history is “thin file”

A “thin file” means that the borrower has little or no established credit history. In general,  the older the applicant, the more suspect a short credit history becomes.

A thin file can be identified by having 1 or 2 small dollar tradelines.  While this may be normal for a person that is recently immigrated, or a younger person it may not be as typical for older borrowers.

However, it is important to remember that as many as 70 million Americans may fall into this category, so a thin file alone is not grounds for rejection. In particular, recent immigrants who are just beginning to establish their credit history in this country or applicants who have until now been operating solely in the cash economy tend to have thin credit files.

Learn more about the tools that can better assess credit-thin applicants.

#2 Red Flag – For most accounts, the applicant is only listed as an authorized user, and their credit score is unrealistically high

Credit repair companies sell authorized tradelines to consumers to help them boost their credit scores. A borrower working to repair their credit will sign on to one or more accounts that are in good standing. While this isn’t illegal,  fraudsters use it extensively when setting up a synthetic identity profile.

An otherwise thin file with several “authorized user” accounts will often have a credit score of 725 or higher. Such disproportionate cases warrant extra caution.

Red Flag Tip- If over 50% of the borrowers’ tradelines are authorized user accounts, be very careful.

#3 Red Flag – The borrower’s history is only composed of low-limit lines of credit

If the highest credit amount is $1,200 or less, this means that the applicant has not been granted large amounts of credit in the past.

If the borrower has a very low credit amount and they are claiming to have a high income or are financing something extravagant, this is another red flag of a possible synthetic identity.

Again, it is important to look at the highest credit amount with other factors on the application and in the credit bureau to determine if this is a synthetic identity risk.

#4 Red Flag – The applicant has a very high number of recent inquiries

One giveaway of synthetic identity is a high number of recent inquiries, especially in conjunction with a recently created credit profile or if the applicant is older.

It may indicate that a synthetic identity applicant has been shopping around for a lender who will not catch on to their fraud. While a high number of inquiries is itself not disqualifying, especially in auto lending, it may warrant further investigation.

#5 Red Flag  – The applicant has some very high-risk bureau alerts tied to their social security number

Pay attention to the alerts that are delivered with the credit bureau itself regarding the Social Security Number.  Synthetic identities always use social security numbers that are either not issued or issued to other people.

Credit bureau alerts can have high false positives, but some warrant special attention.

In particular, applicants should undergo further verification if their social security number:

  • Was issued before the applicant’s date of birth
  • Appears on the death master file
  • Has multiple unexpected other names associated with it

The next steps in protecting against synthetic identity fraud

Fortunately, there are tools to help lenders identify these red flags. Point Predictive’s solutions rely on machine learning and natural intelligence to identify current fraud trends and mitigate risks for clients.

To learn more about our solutions and how they can benefit you, talk to one of our solution experts.  

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