What is Identity Fraud

What is Identity Fraud? Definition & Common Questions

Identity fraud is the use of stolen information to commit crimes, such as making unauthorized purchases, opening fraudulent accounts, or obtaining loans. In this blog, we will explore examples of both, how you could be at risk, and the steps you can take to protect yourself. 

What is Identity Fraud?

Identity fraud is using another person’s identifying information without permission to commit crimes or fraud. This often involves financial gain or deceitful actions.

Here are a few examples of identity fraud in action: 

  • Financial Fraud: Using stolen credit card information to make purchases or withdraw money.
  • Loan Fraud: Applying for loans or mortgages using someone else’s identity.
  • Tax Fraud: Filing false tax returns to receive refunds.
  • Healthcare Fraud: Using someone else’s health insurance information to obtain medical services.

How the DOJ Prosecutes Identity Fraud:

The U.S. Department of Justice (DOJ) rigorously prosecutes identity fraud using federal statutes such as the Identity Theft and Assumption Deterrence Act. This involves collaborative investigations with agencies like the FBI and FTC to gather evidence. Offenders face severe penalties, including fines and imprisonment, with aggravated identity theft carrying a mandatory two-year prison sentence. Understanding these measures helps individuals comprehend the seriousness of identity fraud and the efforts made by law enforcement to address it effectively.

What is Identity Theft?

Identity theft is the act of stealing one’s personal information (name, SSN, credit card details) without their consent. If someone obtains your personal information they can use it for unsolicited purchases or opening accounts on your behalf. 

Identity theft is more common than you may think — and this is a result of the various avenues that someone can steal an individual’s identity. Items such as stolen purses, wallets, mail, or even online shopping, phishing, and malware can all put you at stake. 

Other ways identity theft is committed (online): 

  • Public Wi-Fi Eavesdropping: Hackers intercept data transmitted over unsecured public Wi-Fi networks. This can include login credentials, credit card numbers, and other personal information.
  • Fake Antivirus Software: Pop-up alerts on your computer claim you have a virus and need to download software to remove it. The software is actually malware designed to steal your personal information.
  • Online Shopping Scams: Fraudulent websites pose as legitimate online stores to steal your payment information when you make a purchase.

Difference Between Identity Fraud and Identity Theft

At first glance, identity fraud and identity theft are seemingly interchangeable terms, however, they have key differences. Identity theft is the gathering of someone’s personal information without their permission. On the other hand, identity theft is taking action in the possession of their personal information. In other words, identity theft is the acquisition, while identity fraud is the exploitation. 

How Does Identity Fraud Happen?

Identity fraud encompasses a range of methods, including financial identity fraud, phishing scams, synthetic identity fraud, data breaches, hacking, skimming, and social engineering techniques. These tactics exploit personal information for financial gain or deception, posing significant risks to individuals and organizations alike.

Financial Identity Fraud

Financial identity fraud occurs in multiple forms, including account takeovers, where cybercriminals gain unauthorized access to someone’s financial accounts, such as bank accounts or credit cards. This is typically achieved through phishing scams, malware, or exploiting weak security measures. Once access is gained, the fraudster can make unauthorized transactions, withdraw funds, or change account details.

Phishing and Scams

Phishing is a technique where cybercriminals send deceptive emails, texts, or messages pretending to be from reputable organizations. They often ask recipients to click on links that lead to fake websites where personal information is collected. Phishing scams can also involve fraudulent phone calls or text messages (smishing) aimed at tricking people into revealing sensitive information like passwords or credit card numbers.

Synthetic Identity Fraud

Synthetic identity fraud involves creating a new identity using a combination of real and fictitious information. Criminals use this synthetic identity to apply for loans, credit cards, or open bank accounts. They may use a real Social Security number paired with false information, making detection and prevention challenging for financial institutions.

Data Breaches and Hacking

Data breaches occur when cybercriminals gain unauthorized access to databases containing personal information of individuals or organizations. Hacking involves exploiting vulnerabilities in security systems to access sensitive data. Stolen information from data breaches can be used for various forms of identity fraud, such as opening fraudulent accounts or committing financial crimes.


Skimming involves stealing credit or debit card information by attaching devices to legitimate card readers, such as ATMs or gas station pumps. These devices capture card details when users swipe their cards. The stolen information is then used to make unauthorized purchases or create counterfeit cards.

Social Engineering Techniques

Social engineering techniques manipulate individuals into divulging confidential information or performing actions that compromise security. This can include impersonating authority figures, exploiting trust, or creating a sense of urgency to trick people into revealing personal information or performing financial transactions.

How Can You Detect Identity Fraud?

Detecting identity fraud early is crucial to minimizing its impact. Here are common ways to identify if you have become a victim:

  • Unexplained Charges: Regularly check your bank and credit card statements for any unauthorized or unfamiliar transactions.
  • Unexpected Bills or Statements: Receiving invoices or bills for services or credit accounts you didn’t open or use can be a clear sign of identity fraud.
  • Credit Report Discrepancies: Obtain your free annual credit report from each of the three major credit bureaus (Equifax, Experian, TransUnion) and look for unfamiliar accounts, loans, or credit inquiries. 
  • Declined Credit or Loan Applications: Being unexpectedly denied credit or loans despite having a good credit history may indicate fraudulent activity.
  • Debt Collection Calls: Receiving calls from debt collectors about debts you don’t recognize could mean your identity has been used to obtain credit.
  • IRS Notices: If the IRS sends you a notice about income from an employer you don’t recognize, it might indicate tax-related identity theft.
  • Medical Billing Errors: Receiving bills for medical services you didn’t receive can indicate medical identity theft. 
  • Missing Mail: Not receiving expected mail such as bills, financial statements, or other correspondence could suggest your mail has been intercepted or redirected.
  • Account Change Notifications: Alerts about changes to your online accounts, such as password resets or contact information updates that you didn’t initiate, are red flags.

By paying attention to these indicators, you can quickly detect identity fraud and take the necessary steps to address it.

How to Report Identity Fraud

If you suspect you are a victim of identity fraud, taking immediate action to minimize the damage is important. Here are some steps you could take:

  1. Contact Companies and Financial Institutions

Call the companies where you know fraud occurred. Speak with their fraud department and inform them of the situation.

  1. Place a Fraud Alert on Your Credit Reports

Contact one of the three major credit bureaus (Equifax, Experian, TransUnion) to place a fraud alert on your credit report. This alert notifies creditors to take extra steps to verify your identity before opening new accounts in your name.

  1. Report to the Federal Trade Commission (FTC)

File a report with the FTC through their IdentityTheft.gov website or by calling their Identity Theft Hotline at 1-877-438-4338 (TTY 1-866-653-4261).

  1. File a Police Report

If you have evidence of identity theft, such as fraudulent transactions or accounts opened in your name, file a report with your local police department.

Identity Fraud Prevention Tips

Safeguarding your personal information is more crucial than ever. With proactive measures and awareness, you can significantly reduce the risk of falling victim to identity fraud. 

Here are essential steps to protect yourself:

  1. Secure Your Documents

Store important documents in a safe place and shred any papers that contain personal information before disposing of them. This includes old bills, bank statements, and credit card offers.

  1. Use Strong Passwords and Multi-Factor Authentication

Create complex passwords for your online accounts and enable multi-factor authentication (MFA) wherever possible. MFA adds an extra layer of security by requiring more than just a password to access your accounts.

  1. Be Cautious of Unsolicited Communications

Avoid clicking on links or downloading attachments from unknown sources, especially in emails, text messages, or social media. Verify the legitimacy of requests for personal information before providing any details.

  1. Monitor Your Financial Accounts

Check your bank statements, credit card transactions, and credit reports regularly for any unauthorized activity. Early detection can help minimize the impact of identity fraud.

  1. Stay Informed About Common Scams

Educate yourself about the latest identity theft tactics and scams. Awareness of how criminals operate can help you recognize potential threats and protect yourself effectively.

How to Manage and Reduce Identity Fraud

In the digital age, reducing identity fraud risk requires innovative solutions like biometric technology. Biometric authentication, using unique physical traits such as fingerprints or facial recognition, provides superior security compared to traditional methods. It reduces the risk of unauthorized access and identity theft while offering a convenient, user-friendly process that eliminates the need for complex passwords.

Real-time authentication ensures immediate verification and access control. Solutions like Incode’s ID verification enhance security, user experience, and operational efficiency, helping organizations effectively manage and mitigate identity fraud risks in a digital world.