Sections Supplements

Preventing Identity Theft

The Pros and Cons of Identity Scoring and Credit Monitoring

The Identity Theft Resource Center, a non-profit organization dedicated exclusively to the understanding and prevention of identity theft, defines it as “a crime in which an impostor obtains key pieces of personal identifying information, such as Social Security numbers and driver’s license numbers, and uses them for their own personal gain.

“It can start with a lost or stolen wallet, pilfered mail, a data breach, a computer virus, phishing, a scam, or paper documents thrown out by you or a business that result in ‘dumpster diving.’ The crime varies widely and can include check fraud, credit-card fraud, financial identity theft, criminal identity theft, governmental identity theft, and identity fraud.”

According to Javelin Strategy and Research, a firm dedicated to researching financial-service areas, nearly 8.4 million people were victims of identity theft in 2007, totaling $49.3 billion in fraudulent charges, with the average victim spending at least 25 hours trying to resolve the issue. Identity theft is one of the fastest-growing crimes in the nation — accounting for as much as 25% of all credit-card fraud loss each year. Though victims may not be liable for charges made on fraudulent accounts, it can be extraordinarily difficult to improve credit reports. The theft of your identity can leave you with a poor credit rating and a ruined reputation, which may take months or even years to correct.

To make the situation worse, thieves want more than just your money.

In 2007, the Federal Trade Commission reported that credit-card fraud accounted for 23% of the reported identity-theft cases. However, the non-financial types of fraud, including employment fraud, accounted for 14%, and government documents/benefits fraud accounted for 11%. Non-financial types of identity theft include utilities and phone fraud; medical, criminal, employment, and government benefits fraud; and synthetic identity theft, where the identity is fictional rather than stolen.

Criminals can readily obtain our personal data without having to break into our homes. The U.S. Department of Justice reports that, “in public places, for example, criminals may engage in ‘shoulder surfing’ — watching you from a nearby location as you punch in your telephone calling-card number or credit-card number — or listen in on your conversation if you give your credit-card number over the telephone to a hotel or rental-car company.” Applications for pre-approved credit cards in the mail, which are often discarded without shredding the enclosed materials, roll out the welcome mat to predators who may retrieve them and activate the cards for their use without your knowledge. The Internet has opened up a global village for criminals seeking to obtain identifying data, such as passwords or banking information, because many people respond to unsolicited, official-looking spam.

Once the predator has enough identifying information, they can take over that person’s identity by falsely completing applications for loans and credit cards, making bank-account withdrawals using the victim’s information, and engaging in other unscrupulous activities, inflicting substantial damage on the victim’s assets, credit, and reputation.

Is Free Credit-card Monitoring the Answer?

People are bombarded by offers of free credit-card monitoring that will reduce identity theft. Enterprises that are compromised by data break-ins generally offer free credit-report monitoring to potential victims. Are there limitations to the protection you receive from these free offers? Unfortunately, there truly is no ‘free lunch.’

A study conducted by Gartner, the world’s leading research company, revealed that “identity scoring and monitoring is more effective than credit-report monitoring to watch for potentially fraudulent activity.” According to the U.S. PIRG, the federation of state public-interest research groups, 79% of credit reports contain some type of error. With so many errors, credit monitoring is not a reliable solution for identity-theft prevention.

Notebook computers filled with confidential employee information are stolen on a daily basis, and data breaches and criminal access also occur at retailers, payment processors, and other types of companies all the time. Following a compromise, affected enterprises generally offer potential victims free credit-report monitoring from one of three major credit bureaus: Experian, Equifax, or TransUnion, This implies that credit-report monitoring will protect customers from criminal use of their identity records for subsequent crimes.

However, there are major deficiencies in relying on credit-card monitoring for battling identity theft. If you are an ID theft victim with a stolen Social Security number that was used in concert with other data that does not belong to you, such as a different address or date of birth, you will not be alerted. Potential victims are contacted only if their exact identity, including full name, date of birth, etc., was used to apply for a new mortgage, credit, or other loan.

Most important, any credit-monitoring report will arrive days after the criminal activity has transpired. One has to hope that the criminal hasn’t done too much damage in those few days. Credit-card monitoring also does not catch the non-financial use of your stolen identity, and can, in fact, damage your credit rating even further.

Identity Scoring Makes a Hit

If you are given one tiny piece of a giant puzzle, your odds of being able to determine the whole picture are slim. With identity scoring, however, you get an accurate and comprehensive picture of the person’s credit-related activity. Identity-score systems tap into a broad set of consumer data that judge a person’s authenticity. Identity-score components used by identity-scoring companies include government and public records, corporate data, credit records, and predicted behavior patterns based on empirical data.

Gartner Research defines identity scoring as “scoring the behavior of an identity’s or a criminal ring’s activities over time and across enterprises. Suspect patterns of behavior that show up across different organizations would not necessarily appear if the activity within only one organization was being monitored.”

Credit-report monitoring is not able to identify criminal activity or individual records linked by stolen data. Identity scoring takes into affect far more attributes that clearly define the individual and their behavior over a significant period of time.

The basic identity-score components a company uses in its ID scoring include name and address components; Internet monitoring of personal information found online on Web sites, newsgroups, and blogs; fraud information such as that found with stolen credit cards; behavioral-pattern analysis; synthetic-identity information, which is the information used to create a fake identity; and predictive analytics, which weighs behavioral data against earlier set patterns of behavior.

Gartner Research’s July 2006 report titled “Limit ID Fraud: Use Identity Scoring, Not Credit Monitoring” indicates that “identity scoring and monitoring was explicitly designed to look for identity-theft-related fraud.

Credit scores were designed to help lenders make good credit decisions. Direct-to-consumer credit reports and monitoring evolved several years ago when consumers wanted to know the content of their credit score. Consumer credit-report monitoring further developed as a way for consumers to directly monitor inquiries about their credit reports to determine if such inquiries were made for either legitimate or potentially criminal purposes.”

Recovery after an identity is stolen is very important and very complex. There are many calls to make and steps to take, and, unfortunately for the victims, identity theft is often much simpler, and quicker, than the recovery.

Low-cost Employee Benefit

In our recessionary times and with medical insurance being very expensive, not every business can afford to offer health care and disability insurance to their employees. More and more businesses are looking for lower-cost, yet high-value employee benefits that will give their workforce peace of mind. Identity protection is a value-added benefit that companies are offering to their employees as a low-cost addition to their benefit package.

If your company does not offer an identity-scoring and monitoring service for employees, daily vigilance is vital. If you are denied credit for no valid reason or receive new credit cards in the mail that you did not request, you may be an identity-theft victim. Call each of the credit-card-reporting agencies and have them place a fraud alert on your file. Call to dispute each fraudulent charge. The Federal Trade Commission offers an ID Theft Affidavit that should be filled out if companies don’t have their own dispute forms.

It is important to treat one’s financial and personal information with care and discretion and to be vigilant about checking statements and accounts. When you are proactive about protecting yourself, your chances of being the next identity-theft victim are reduced dramatically.

Jim Collins is president of HR Plus, a provider of background screening and pre-employment services, www.hrplus.com; and a division of Allied Barton Security Services, a provider of highly trained security personnel.