Cashay logo

Empowering your money

Identity theft: How it works and how to prevent it

At a glance:

  • What is identity theft?

  • How can your identity be stolen?

  • Forms of identity theft

  • How identity theft affects your life

  • How to prevent identity theft

  • Summary of identity theft

  • Practical ideas you can start with today

Imagine getting a credit card bill in the mail for $10,000 that you did not spend. And that the credit card isn’t even yours.

Or imagine finding that there is an arrest warrant out for you for a crime you did not commit. These are just some of the examples of identity theft, a crime that can affect all areas of your life for years to come.

Identity theft is a wide-ranging and innovative crime with effects that are most noticeable on your finances. But the effects can also hit your credit record, your medical record, your criminal record, and any other record that has your personal information on it. ID theft is often a difficult crime to track down and sometimes a very difficult crime to crawl out from under.

What is identity theft?

Identity theft is a crime in which a person uses another person's personally identifying information without that person's permission in order to commit a crime. Motivations for committing identity theft are many; they can include buying things for free, destroying another person's life out of vengeance, avoiding taxes, and other reasons.

ID thieves can be friends and family members, fellow churchgoers, rogue individuals, or whole criminal syndicates.

How prevalent is it?

The number of victims hit by identity theft can't be definitively established because not every victim reports it, and not every victim is even aware of it. One figure provided by Javelin Strategy and Research put it at 14.4 million in 2018.

The average out-of-pocket loss in dollars has risen over the years. The total annual reported fraud, according to Javelin, was about $14.7 billion in 2018. This figure is large enough to make identity theft a factor to consider in safeguarding your finances.


As awareness and prevention efforts have grown, ID thieves have become more resourceful. One tactic they use more than they used to is opening up new accounts in other people's names and using them without the victims' knowledge, rather than using established ones.

Another is stealing from debit cards, because debit cards have fewer protections on them than credit cards do. New forms of technology are also ripe for ID theft. These include texting and social media sites. Another new method involves combining information from several people into a new, non-real person.

Laws against ID theft

The federal government passed the Identify Theft and Assumption Deterrence Act in 1998 to address ID theft. In the wording of the Act, it is a crime when someone:

[K]nowingly transfers or uses, without lawful authority, a means of identification of another person with the intent to commit, or to aid or abet, any unlawful activity that constitutes a violation of Federal law, or that constitutes a felony under any applicable State or local law.

Federal agencies such as the FBI, the Secret Service, and the US Postal Inspection Service investigate ID crimes. The Department of Justice handles prosecutions. ID theft is not always investigated at the federal level, however; it will do so only if there is a widespread theft involving many people or if the dollar amount of the theft is very high.

The Identity Theft Penalty Enhancement Act, passed in 2004, establishes penalties for aggravated ID theft.

On the state level

Every state has a law covering identity theft; some are more severe than others. Many states have specific provisions for restitution and forfeiture. A number of them also have identity theft passport programs to protect victims from ongoing ID theft.

State statutes can be found here.

How can your identity be stolen?

Identity thieves take and use personally identifiable information about people and use this information to impersonate them. Their methods are many, so it pays to become familiar with what they do. Thieves use a variety of information, such as Social Security numbers, bank account numbers, your address and phone number, your birthday, your driver's license number, insurance information, credit card numbers, and debit card numbers.

Your Social Security number is perhaps the most important to thieves because it can be used to set up bogus accounts from which they can extract money.

Here are some known methods by which identity thieves work:

Physical methods

  • Stealing your bank or credit cards, other identification cards, checks, or other financial instruments. This can be done through robbery, stealing mail, stealing your wallet when it is unattended, or pickpocketing.

  • Foraging through your trash for personal information or pre-approved credit slips.

  • Looking over your shoulder at ATMs, scanners, or other electronic equipment to get PIN numbers or credit card numbers.

  • Gathering public records about you from various official registers.

  • Stealing castings of fingers in order to produce your fingerprints.

  • Gathering electronic data storage equipment such as flash drives, hard drives, smart phones, and computers that have not been wiped clean.

Bogus schemes

  • Advertising false job offers and gathering resumes that show personal information.

  • Posing as an employer or landlord and ordering your credit report.

  • Contacting you through a bogus telemarketing scheme to get your personal information.

  • Impersonating a customer service person and asking for your personal information.

  • Diverting your mail in order to get your personal information.

  • Diverting your mail or email in order to delay your finding out about bogus accounts set up by thieves.

Electronic methods

  • Skimming information on your credit cards, check cards, or passports via hacked scanners.

  • Gathering your information by using malware, such as Trojans or spyware.

  • Hacking into entire computer networks, for example at credit card companies.

  • Obtaining personal information from breaches of networks or other systems.

  • Abusing one's privileges as an IT person or account representative and accessing your personal information. This can happen at your place of employment.

  • Phishing—impersonating an organization in email, over the phone, or via text to persuade you to give out your personal information.

  • Smishing—phishing via text message.

  • Using electronic equipment or sheer guesswork to obtain usernames or passwords.

  • Taking advantage of weak privacy protections on your computer.

  • Buying your personal information online from criminals.

This Monday, June 19, 2017, photo shows fingers on laptop keyboard in North Andover, Mass. The Equifax breach not only exposed sensitive personal information of 143 million Americans, but it also underscored the huge and largely unaddressed vulnerabilities that make widespread identity theft possible. Experts have warned for years that the widespread use of Social Security numbers, lax corporate security and even looser individual password practices could lead to an identity-theft apocalypse. (AP Photo/Elise Amendola)
This Monday, June 19, 2017, photo shows fingers on laptop keyboard in North Andover, Mass. The Equifax breach not only exposed sensitive personal information of 143 million Americans, but it also underscored the huge and largely unaddressed vulnerabilities that make widespread identity theft possible. Experts have warned for years that the widespread use of Social Security numbers, lax corporate security and even looser individual password practices could lead to an identity-theft apocalypse. (AP Photo/Elise Amendola)

Social methods

  • Using your personal information out of revenge against a former spouse, friend, lover, or co-worker.

  • Friending strangers on social networks and gradually obtaining their personal information through conversations.

  • Hacking into social networks.

  • Gathering personal information posted by you on social media, message boards, or texts.

Forms of identity theft

Identity thieves steal a person's identifying information and use it for any of several different purposes. Many of them overlap.


Financial identity theft is what most people think of when they hear of identity theft. It involves stealing another person's credit card number, Social Security number, bank account number, or some other information that allows that person to access the victim's money. The thief can also buy homes, rent apartments, get utility services, sign up for credit cards, and many other actions.


Medical identity theft has the most potential of all the forms of ID theft to cause physical harm. It happens when someone uses your name or your insurance information to obtain medical services or to change your medical record. Beyond just the monetary costs to you and your insurance company, the changes to your record can result in incorrect and life-threatening diagnoses or treatments.


This form of ID theft is sometimes not detected until you get stopped for a minor criminal infraction, such as speeding. The officer pulls up your information and you discover that there is an arrest warrant or some other surprise there. In other cases, you might get a letter stating that a fine you did not incur is overdue. If the thief is the one who gets caught, he will typically have a fake ID with the victim's information but his picture.

Driver's license

Stealing a driver's license is as simple as stealing a wallet or purse. Once the thief has it, he or she can sell it to someone who looks like you. Then that impostor can open up other forms of identification in your name.

Social Security

Your Social Security number is the most valuable piece of information that a thief can steal, because it is required for opening so many types of accounts and forms of ID. This form of theft can also be perpetrated by people who want you to pay their taxes for them. They steal your Social Security number and put it onto a W4, then underpay their taxes. The result: you get stuck with the tax burden and have to convince the IRS that you are not the thief.


Synthetic ID theft is a more recent innovation and is growing rapidly. It involves combining personal information (real or fake, or some of both) from several people to form a new, non-real person. All of the victims involved can be affected by it. In cases where the information is fake, victims may not see it on their credit reports. Because of the presence of so much fake information and non-real people, victim surveys do not capture the full scope of synthetic ID theft.


Children are also victims of ID theft. Why? Partly because they won't be checking their credit reports for many years to come. In some cases, the ID thief is the child's parent(s) or a relative.


With business ID theft, a person uses a business's name to get credit or to bill the business's clients for money. Sometimes, the thief is an insider with access to the company's information.

How identity theft affects your life

Because your identity is central to everything you do, ID theft can reach into all areas of your life and can affect you for years, perhaps for the rest of your life. It depends on what information was stolen, how it was used, and how quickly and thoroughly you have responded to it.

Here are some major areas of life that are tainted when you become a victim of ID theft:

Your credit is harmed

Your credit will probably be harmed because thieves will use your credit to buy what they want without intending to pay it back. Victims often don't realize that their identity has been stolen until they attempt to buy a home or car. By this point, their credit can be seriously damaged. There may be collections out on them, and they may be unable to buy anything on credit for quite a while. Even when it seems your credit has been cleared, there may still be lingering crimes that will affect it later.

You must spend a lot of time talking with law enforcement

Dealing with ID theft after it has occurred can take a lot of time, depending on the severity. In some cases, you have to work with law enforcement repeatedly in order to clear up your criminal record. They may not always be nice to you. In some cases, you can be arrested for a thief's crimes, and you can sit in jail until it is straightened out.

Your insurance and medical care may be compromised

An ID theft may use your identity to get medical care. This can leave behind large medical bills and false diagnoses and drive up your health insurance rates. Also, the thief's medical history can be merged with yours, which can raise your insurance premiums and result in incorrect diagnoses and treatments.

You may need to change your name

Your name may be associated with the ID thief for many years to come. This is why some victims of extensive ID crimes resort to changing their names. Changing your name carries with it a whole new set of paperwork for such tasks as getting a driver's license and changing your W2 forms.

It can hurt your ability to get a job

Some jobs require security clearances, credit checks (this is getting more and more common), or a clean police record. If someone else has stolen your identity and committed crimes in your name, all of these can be compromised.

You may need to declare bankruptcy

If your credit is damaged and recovery is taking a long time, you may consider declaring bankruptcy to get creditors off your back.

You have to prove yourself over and over

Any company that was scammed in your name will contact you for payment, sometimes over and over. You will have to explain yourself to every one of them, maybe more than once. For some victims, recovering from ID theft becomes a full-time job.

How to prevent identity theft

Preventing identity theft involves preventing others from getting access to your personally identifiable information.

Papers and documents

Shred any documents that have identifying information on them—credit card statements, utility bills, medical bills, credit applications, junk mail, insurance forms, bank statements, etc. Consider depositing your outgoing mail in a post office collection box or directly at the Post Office, and collect your incoming mail as soon as it arrives.

Make sure that your personnel records at work are secure.

Computer and phone

  • Computers are vulnerable because many people load a lot of personal information on them for uses such as banking, shopping, and recordkeeping. Use a secured browser (with the padlock icon in the lower right) with your privacy settings on high.

  • Read privacy policies closely. Some Websites will sell or use information about you.

  • Don't post seemingly harmless information such as your birth date, email address, etc. online. Thieves can use these.

  • Verify any emails that ask you to reset a password. Those are most likely ID theft tricks.

  • If you don't already have a firewall and current antivirus protection with anti-spyware, put them on your computer.

  • Keep track of all your usernames and passwords and where they are kept. Change them periodically.

  • If you do file sharing, do it on a computer that does not have any of your personal information.

  • Don't use automatic logins that store your user information.

  • Be suspicious of unsolicited emails. Compare any links in the emails to the links you are being directed to. Better yet, call up the business to confirm it.

Your credit and credit cards

  • Don't carry more cards than you need. Don't carry your Social Security card with you. Put passwords on your cards and other accounts if you can.

  • Get your credit report every year from each of the three credit bureaus via Space them throughout the year.

Emergency situations

ID thieves can loot your home after you evacuate it during an emergency or natural disaster. Keep photocopies of your important papers, including financial accounts, and store them in a locked box in case you have to leave home at a moment's notice.

Shopping online

  • Some thieves have created online shopping sites that look exactly like real ones. Make sure that the Web address is the real one and that it matches the company.

  • The addresses on ordering pages should begin with https. The s means "secure."

  • Make sure the little padlock icon is at the bottom of your screen. The lock should be in closed position.

  • If you are shopping on an unfamiliar site, research the company to ensure that it is legitimate.

  • Shop in stores that are located in the United States.

  • Don't provide your Social Security number to online vendors.

  • Don't provide any information beyond what's required.

  • It is safer to shop online with a credit card than a debit card.


Know that the IRS does not contact people by email. If you receive an email claiming to be from the IRS and claiming that you owe money or are getting a refund, forward it to

ID theft protection services

Identity theft protection services have sprung up to serve individuals in a variety of ways. For a small fee each month, they will provide such services as monitoring public records, monitoring your credit, providing resolution, providing insurance or guarantees, and providing Internet monitoring. It's a good idea to research several and look up reviews for each one, because their levels of service and their reputations differ.

Summary of identity theft

It may seem that guarding your identity is a big job, covering everything from your phone to your papers to your computer and even your friends. These days, even social media sites are ripe grounds for identity thieves. Identity theft is one of the unfortunate downsides of being so connected in so many ways with so many other parties.

Luckily, there is a wealth of information and tips for you to follow. Sites like,, and exist to help you learn what you need to prevent and respond to compromises of your identity.

Practical ideas you can start with today

  • Look up your state's laws against identity theft.

  • Keep track of all of your usernames and passwords. Change the passwords periodically.

  • Shred all of your financial papers after you are done with them.

  • Access your credit report every year from

  • Secure your computers and other electronic devices.

This content was created in partnership with the Financial Fitness Group, a leading e-learning provider of FINRA compliant financial wellness solutions that help improve financial literacy.

Read more information and tips in our Planning section

Read more personal finance information, news, and tips on Cashay

Follow Cashay on Instagram, Twitter, and Facebook