The Main 3 Types of Identity Theft

Lock and key on credit cards
••• Daniel Grill / Getty Images

Identity theft and identity fraud are terms used to refer to all types of crimes in which someone wrongfully obtains and uses another person's information in some way that involves fraud or deception. Typically, these crimes are committed for economic gain. Identity theft is a scourge that emerged with technology and will remain and increase as much as technology adoption increases. It's a complex and ever-evolving issue, and creates a lot of challenges about the best way to alleviate it.

Not all forms of identity theft result in an immediate financial loss to the victim. Over time, however, the victim often ends up paying in some way. The best way to prevent those losses is to stay informed about identity fraud. To help you prevent fraud, here are more details on the top three forms of identity fraud.

The Top 3 Forms of Identity Fraud and Some Alternatives

There are many different kinds of identity fraud, and new ones spring up occasionally, as well. For this piece, the focus will be on three types that are both common and potentially detrimental: business/commercial identity theft, new account fraud, and account takeover fraud.

Keep in mind that you may see these terms vary slightly, depending on the source, and there is often overlap. For example, if someone steals your credit card information, uses it to open an Amazon account, and places orders, that crime includes aspects of account takeover, credit card, new account, online shopping, and financial identity frauds.

While this piece only describes three kinds of identity fraud in detail, it's important to be aware of all the forms of potential fraud. Here is a partial list of other common forms of fraud:

  • Criminal identity theft involves assuming your identity to avoid legal punishment. A criminal may give your name when they're arrested, for example, so that their record isn't affected.
  • Medical identity theft involves fraudulently enjoying your medical benefits. The scammer obtains your health insurance information and uses it to receive care.
  • Identity cloning involves scams in which the scammer assumes your identity for a prolonged period. For example, they may apply for jobs using your identity, so that they can pass background checks.

Business or Commercial Identity Theft

Business or commercial identity theft entails using a company's name to obtain credit or otherwise fraudulently pretend to be that business. This has obvious negative effects on the business, but the fraud can ripple out and affect others who believe they're interacting with the legitimate business. For example, a fraudster might pose as a business, send a bill to that company's clients, and pocket the payments.

Often, but not always, this form of identity theft requires the scammer to obtain the Tax Identification Number (TIN) of the company. The fraud may be executed by obtaining a company computer or infiltrating a company's network. In some cases, the perpetrators of business identity theft are insiders, current employees, or former employees with direct access to operational documentation.

Victims of business identity theft often do not find out until losses build significantly or someone internally sees discrepancies on the books. Businesses lose vast amounts of money because of the hidden nature of the transactions.

Business identity theft can go on for years undetected.

To prevent this type of fraud, businesses should keep a close eye on their accounts and billing cycles. Shredding any important documents and going digital whenever possible will help reduce your paper trail. If you notice anything awry, freeze your accounts and report the identity theft.

New Account Fraud

Financial identity theft in the form of new account fraud generally means using another's personal identifying information to obtain products and services using that person’s good credit standing. Numerous forms of financial identity theft can occur if a fraudster can open an account in your name.

Some of the most prevalent forms of new account fraud include opening new utility accounts, cell phone plans, or credit card accounts. According to the Insurance Information Institute, new credit card account fraud was the single most common form of identity fraud in 2018. Because the thief is likely to use a different mailing address, the victim never sees the bill for the new account. When this type of fraud involves a credit card, the criminal can turn a newly issued credit card into cash very quickly.

The fraudster may or may not require your SSN to open new accounts in your name. Keeping close tabs on your SSN and any financial accounts will help prevent this type of fraud. If you know your information has been exposed, you might consider freezing your credit, which will automatically block any attempts to check your credit, such as in cases of new credit card accounts.

Account Takeover Fraud

Financial identity theft in the form of account takeover fraud generally means using another person's account information (for example, a credit card number) to obtain products and services through that person’s existing accounts. This also includes simply extracting funds from a person's bank account.

Account numbers are often found in the trash, hacked online, stolen out of the mail, or lifted from wallets and purses. Once the thieves obtain this data, they may input that information while shopping online. They may also directly access individual accounts online, over the phone, or through the mail. Criminals use social engineering to manipulate banks and stores into believing that they are the victims.

Victims are often the first to detect account takeover when they discover charges on monthly statements they did not authorize or funds depleted from existing accounts. Sometimes the victim will find out their bank account was compromised as a result of numerous charges from bounced checks.

Like other forms of fraud, closely monitoring your accounts is the best way to detect account takeover. As soon as you notice something's off, contact customer service.