What Is Identity Theft? How to Prevent and Protect Your Identity

Key Takeaways:

• Identity theft is the crime of using someone else’s personal information without their permission to commit fraud or other illegal activities. This information can include Social Security numbers, credit card details, or bank account information.
• Identity theft can result in various forms of fraud, including unauthorized credit card purchases, opening new accounts, tax fraud, and medical fraud.
• Protecting personal information with strong passwords, secure networks, and careful sharing of sensitive data can help prevent identity theft.

 

Identity is more than just a collection of personal information—it’s a multifaceted concept that encompasses everything from personal identifiers to digital footprints, and even biometric data. Understanding what defines identity is crucial, as it lays the foundation for recognizing the risks and consequences of identity theft. In 2023, there were more than 1 million reports of identity theft received through the FTC, highlighting the growing threat and prevalence of this crime. As cybercriminals become increasingly sophisticated, identity theft has emerged as one of the most pervasive and damaging forms of fraud today. From financial losses to long-lasting emotional and legal repercussions, identity theft can destroy lives in an instant. This article dives into the intricate nature of identity, the methods used by identity thieves, the various types of identity theft, and the steps you can take to protect yourself from becoming a victim.

Defining Identity: More Than Just Personal Information

An individual’s identity is a complex interplay of characteristics, beliefs, experiences, and expressions that define who they are. It encompasses an individual’s entire being, extending beyond personally identifiable information (PII) to include:

• Personal Identifiers: Names, birth dates, Social Security numbers, contact information, and similar details.
• Financial Information: Credit card numbers, bank account details, and financial records.
• Digital Footprints: Usernames, passwords, security questions, social media profiles, and online identifiers.
• Health Records: Health insurance information and Medicare data.
• Biometric Information: Unique biological traits such as fingerprints, voice patterns, and facial recognition.

What Is Identity Theft?

Identity theft is the illicit act of obtaining and using an individual’s personal information for fraudulent activities, typically without the victim’s knowledge or consent. This personal information  can include your name, Social Security number, credit card details, bank account information, or even online credentials.

When this stolen data falls into the hands of cybercriminals, it can be used to commit various crimes, ranging from financial fraud and unauthorized transactions to impersonation and unauthorized access to sensitive accounts.

Common Identity Theft Techniques

Identity thieves employ various methods to obtain personal data from their victims. Being aware of these techniques can help individuals recognize potential threats and take proactive measures to protect their information.

Here are some of the most common ways identity theft occurs:

1. Shoulder Surfing

Shoulder surfing involves thieves observing or recording personal information, such as PINs or passwords, by looking over a person’s shoulder while they enter the information on a device or keypad. This can happen in public places like ATMs, retail stores, or crowded areas where individuals may be less cautious.

2. Physical Theft

Identity thieves may steal wallets, purses, or personal belongings that contain identification documents, credit cards, or other personal information. They often target individuals in crowded areas, on public transportation, or by breaking into homes or vehicles.

3. Malware and Hacking

Identity thieves use malware, such as keyloggers or remote access tools, to gain unauthorized access to personal devices or networks. Once compromised, they can harvest personal information, monitor online activities, or remotely control the device for identity theft or financial fraud.

4. Social Engineering

Social engineering involves manipulating individuals psychologically to gain access to their personal information. Thieves may pose as trusted individuals, such as bank representatives or IT support technicians, to persuade victims to share their private information or passwords.

5. Phishing

Phishing involves sending deceptive emails, text messages, or making phone calls that appear to be from legitimate organizations or individuals. These messages typically request personal information, such as usernames, passwords, Social Security numbers, or credit card details, with the goal of tricking individuals into unknowingly providing their sensitive information.

6. Dumpster Diving

Identity thieves may search through trash or recycling bins to find discarded documents containing personal information. These documents can include bank statements, credit card offers, medical records, and utility bills, which thieves use to assume the victim’s identity or commit financial fraud.

7. Skimming

Skimming involves capturing credit or debit card information by attaching devices to card readers, such as those at ATMs, gas pumps, or point-of-sale terminals. These devices record card details, including magnetic stripe or chip data, allowing thieves to create counterfeit cards or make unauthorized transactions.

8. Data Breaches

Data breaches occur when unauthorized individuals access databases containing personal information. Cybercriminals often target organizations, such as retailers, financial institutions, or healthcare providers, to obtain large volumes of personal data, including names, addresses, Social Security numbers, and payment card details. This stolen information is then sold or used for identity theft.

The Different Types of Identity Theft

Identity theft can be classified into six distinct types:

1. Financial Identity theft

Financial identity theft is the most common form of identity theft, where thieves use someone’s personal information, such as a Social Security number, credit card details, or bank account information, to conduct fraudulent financial transactions. Thieves exploit these stolen details to make unauthorized purchases, open new credit accounts, or drain victims’ bank accounts, leading to significant financial losses and damage to credit scores.

2. Tax Identity Theft

Tax identity theft occurs when criminals use stolen personal information, such as Social Security numbers, to file fraudulent tax returns and claim illegitimate refunds. Victims may face delays in receiving legitimate refunds and could suffer financial consequences due to the false tax documents submitted in their name.

3. Medical Identity Theft

Medical identity theft involves using an individual’s personal information to obtain medical services, prescribe medications, or file false insurance claims. For example, perpetrators may use stolen identities to receive medical treatment, purchase prescription drugs, or submit fraudulent bills to insurance companies.

4. Child Identity Theft

Child identity theft occurs when a child’s personal information, such as their Social Security number, is stolen and used by criminals. Children’s identities are appealing targets due to their clean credit histories and the likelihood that the theft will go unnoticed for an extended period. Criminals may use a child’s identity to open fraudulent credit accounts, apply for government benefits, or commit other types of fraud, potentially affecting the child’s financial future and creating significant challenges in repairing the damage.

5. Criminal Identity Theft

Criminal identity theft involves using stolen personal information to create false identities and commit crimes. When thieves provide stolen identities to law enforcement during an arrest or investigation, false criminal records and arrest warrants may be issued in the victim’s name. This can lead to legal complications, including wrongful arrests, difficulties in employment, and challenges in clearing the victim’s name.

6. Synthetic Identity Theft

Synthetic identity theft is a sophisticated form of identity theft where criminals combine real and fake information to create synthetic identities. They may use fragments of actual personal information, such as Social Security numbers or names, along with fictitious details to establish credit accounts or obtain financial benefits. Synthetic identities can be challenging to detect and often involve multiple individuals’ stolen information, making it difficult to untangle the web of fraudulent activity.

The Impact of Identity Theft on Individuals

Identity theft can have severe consequences for victims, affecting both their financial well-being and emotional health. Common impacts include:

1. Emotional Distress: Victims often experience significant stress, anxiety, and feelings of violation due to the misuse of their personal information.
2. Credit Score Damage: Unauthorized financial activities can lead to a drop in credit scores, making it difficult to obtain loans, credit cards, or mortgages.
3. Financial Losses: Victims may face substantial financial losses from unauthorized transactions, fraudulent accounts, or drained bank accounts.
4. False Accusations: Stolen identities can lead to victims being wrongfully accused of crimes they didn’t commit, resulting in legal complications.
5. Wrongful Criminal Sentencing: In severe cases, identity theft can result in victims being wrongly sentenced for crimes committed by the thief.
6. Damage to Reputation: The misuse of personal information can harm a victim’s reputation, especially if the identity theft involves criminal activities.
7. Psychological Issues: The ongoing stress and fear of further identity misuse can lead to long-term psychological issues, such as depression and paranoia.
8. Employment Challenges: Identity theft can lead to difficulties in finding or keeping a job, especially if the theft results in a damaged reputation or criminal record.

How to Prevent Identity Theft

Identity theft is a growing concern, and taking proactive measures to protect yourself is essential. Here are 12 effective ways to prevent identity theft:

1. Secure Your Documents

Keep important documents containing personal information in a safe place at home and work. Avoid carrying unnecessary identification cards, like your Social Security or Medicare cards, unless needed, and store them securely to minimize the risk of loss or theft.

2. Be Cautious When Sharing Information

Share personal, financial, or health plan information only with trusted individuals or organizations. Be wary of unsolicited requests for sensitive data via email, phone calls, or social media. Legitimate organizations will never ask for sensitive information in these ways. When in doubt, verify the request’s legitimacy independently.

3. Review Your Credit Card Receipts

Ensure that your credit card receipts do not display your full account number. If a receipt shows more than the last four digits, report it to the appropriate authorities immediately.

4. Strengthen Your Passwords

Create strong, unique passwords for all your online accounts, using a combination of uppercase and lowercase letters, numbers, and special characters. Avoid obvious choices like birthdates or sequential numbers. Consider using a reliable password manager to securely store and manage your passwords.

5. Keep Software and Devices Updated

Regularly update your computer, smartphone, and other connected devices with the latest security patches and software updates. Hackers often exploit vulnerabilities in outdated software to access your information. Protect yourself by installing reputable antivirus and anti-malware software.

6. Shred Unnecessary Documents

Shred receipts, credit offers, loan applications, insurance forms, bills, medical records, bank statements, and similar documents when they are no longer needed. Using a cross-cut shredder ensures that the information is unrecoverable and prevents dumpster-diving thieves from accessing your sensitive data.

7. Monitor Your Financial Statements

Regularly review your bank statements, credit card bills, and other financial accounts for suspicious transactions or unauthorized activities. Report any irregularities to your financial institution immediately.

8. Check Your Credit Reports

Regularly check your credit reports from the major credit bureaus (Equifax, Experian, and TransUnion) for suspicious activity or unauthorized accounts. You can obtain a free credit report annually from each bureau.

9. Beware of Phishing Attempts

Be cautious of emails, messages, or websites that appear legitimate but are designed to deceive you into revealing sensitive information. Look out for spelling errors, suspicious links, or requests for personal data. Always verify the legitimacy of requests, especially when dealing with financial institutions or sensitive accounts.

10. Enable Two-Factor Authentication (2FA)

Enable two-factor authentication whenever possible to add an extra layer of security. This typically involves a unique code sent to your phone in addition to your password.

11. Use Secure Networks

Make online purchases only from reputable websites with secure checkout processes, indicated by URLs beginning with “https://”. Avoid conducting financial transactions on public Wi-Fi networks, as they are often unsecured. Instead, use a trusted and secure network or a virtual private network (VPN) for added protection.

12. Educate Yourself

Stay informed about the latest identity theft techniques, scams, and security best practices. Understanding the common signs of identity theft can help you detect and prevent fraudulent activity.

Steps to Take if You Are a Victim of Identity Theft

Discovering that you have become a victim of identity theft can be traumatic. However, taking immediate action is crucial to mitigate the damage and restore your identity. Follow these steps if you become a victim of identity theft:

1. Report the Incident: Immediately report the identity theft to your local law enforcement agency and file a complaint with the Federal Trade Commission (FTC) at identitytheft.gov.
2. Notify Financial Institutions: Contact your financial institutions and request that they freeze or close the affected accounts to prevent further unauthorized transactions.
3. Contact Credit Bureaus: Reach out to the major credit bureaus—Equifax, Experian, and TransUnion—to report the identity theft and place a fraud alert on your credit reports.
4. Change Passwords and PINs: Update the passwords and PINs for all your online accounts, including banking, email, and social media, to prevent further unauthorized access.
5. Inform Other Organizations: Notify other organizations or entities that may be affected by the identity theft, such as utility companies, healthcare providers, and government agencies.
6. Take Additional Precautions: Follow any additional steps specific to your identity and accounts, such as monitoring your Social Security number for misuse.
7. Monitor Financial Accounts: Remain vigilant in monitoring your financial accounts, credit reports, and other sensitive information for any further suspicious activity.

Identity Theft Laws and Regulations

Different jurisdictions have laws that address identity theft and provide legal recourse to victims. In the United States, several key laws apply:

1. Identity Theft and Assumption Deterrence Act (ITADA): Enacted in 1998, the ITADA makes identity theft a federal crime, prohibiting the unauthorized use of another person’s identifying information with the intent to commit unlawful activity. It also establishes penalties for identity theft offenses, including fines and imprisonment.
2. Fair Credit Reporting Act (FCRA): The FCRA regulates the collection, sharing, and use of consumer credit information. It grants consumers rights regarding their credit reports, including the right to access their reports, dispute inaccurate information, and place fraud alerts or credit freezes on their credit files. The FCRA also imposes obligations on businesses that use consumer credit information.
3. Health Insurance Portability and Accountability Act (HIPAA): HIPAA establishes privacy and security standards for protecting individuals’ health information. It requires healthcare providers, insurers, and other entities to safeguard sensitive health data and notify individuals in the event of a breach.
4. Computer Fraud and Abuse Act (CFAA): The CFAA addresses various computer-related offenses, including unauthorized access to computer systems and theft of sensitive information. It criminalizes hacking, identity theft involving computers, and other cybercrimes.
5. Identity Theft Penalty Enhancement Act (ITPEA): The ITPEA increases penalties for identity theft offenses and allows for additional punishment when the crime involves terrorism, drug trafficking, or other serious offenses. It aims to discourage and punish individuals engaged in identity theft-related activities.

International and Cross-Border Identity Theft Regulations

Several laws and regulations have broader jurisdictional reach or international implications, including:

1. Payment Card Industry Data Security Standard (PCI DSS): Established by major credit card companies, PCI DSS is a global security standard designed to safeguard cardholder data. It sets requirements for businesses that process, store, or transmit payment card information, ensuring secure systems and protection against data breaches.
2. European Union’s General Data Protection Regulation (GDPR): The GDPR is a comprehensive data protection regulation that applies to all EU member states. It establishes strict requirements for the collection, processing, and storage of personal data and provides individuals with enhanced rights and protections.
3. Financial Action Task Force (FATF) Recommendations: The FATF is an intergovernmental organization that sets international standards for combating money laundering, terrorist financing, and other financial crimes. These recommendations are crucial for identity theft prevention and detection on a global scale.
4. Council of Europe’s Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data (Convention 108): This international treaty establishes principles for the protection of personal data and governs its cross-border flow among member states, ensuring consistent standards for data privacy and security.

Conclusion

Identity.com

In the digital age, identity theft is a serious problem that must be addressed. As an identity-focused blockchain company, we create solutions built on blockchain that will reduce such occurrences. This is one of the reasons we embraced blockchain. As a company, we develop and build identity management systems that focus on keeping users’ privacy private and with strong security, making data/identity theft a more strenuous adventure. We contribute to a more user-centric future via identity management systems and protocols. We also belong to the World Wide Web Consortium (W3C), the standards body for the World Wide Web.

The work of Identity.com as a future-oriented company is helping many businesses by giving their customers a hassle-free identity verification process. Identity.com is an open-source ecosystem providing access to on-chain and secure identity verification. Our solutions improve the user experience and reduce onboarding friction through reusable and interoperable gateway passes. Please get in touch for more info about how we can help you with identity verification and general KYC processes.