5 Ways Fraud is Contributing to Historically High FICO Scores

This week, FICO announced that the national average credit score has hit an all-time high of 706 –  significantly above the average credit score of 686 during the Great Recession of 2009.

While an improving economy, lower unemployment, and statewide initiatives that removed some black marks from consumer’s credit histories have played a major part in pushing average credit scores up, there is another, more sinister factor at play: synthetic identity and credit manipulation.

In the first 2 months of 2019, Facebook identified and removed more than 2.1 billion fake profiles from their platform. Mark Zuckerberg claimed, “We’re removing more fake profiles than ever” and vowed to continue the battle to protect the Facebook community.

Meanwhile, in the financial world, lenders, banks and credit reporting agencies are battling their own wave of intruders:  fake credit profiles and false disputes of trade lines, to fraudulently inflate credit scores.  The dramatic rise in synthetic identity and credit manipulation cannot and should not be ignored as an influencing factor in the credit score equation.

Let’s look at some of the evidence.

#1 – Synthetic Identity is no longer a rare occurrence

The sharp increase in synthetic identity fraud is nothing new; PointPredictive has been tracking this since 2016. From 2016 through 2018, PointPredictive specifically analyzed synthetic identity risk among auto lenders and found that the rate of synthetic risk increased by 240%.

The following chart shows the rate of high-risk synthetic identity applications on millions of loans analyzed during that two-year period.  Our risk models are flashing warning signs that approximately 1.6% of all applications to auto lenders contain markers of potential synthetic identity risk.  This upward trend has continued into 2019.

Synthetic Identity is no longer such a rare event that it can be excluded as a factor driving higher average FICO scores.  Synthetic identity fraudsters are more successful today in creating fake credit profiles than ever before, and it’s having a negative impact on the entire credit granting process.

#2 – Synthetic Identity Artificially Boosts Average Credit Scores

The problem with synthetic identity is that there is an unlimited supply of fake profiles available to a fraudster.   When they burn through one identity, they can create another, and another, and another.

In fact, Synthetic Identity rings have been known to create and exploit hundreds of fake profiles and identities before they are ever discovered.

And they are creating, developing and harvesting profiles that appear to be the most creditworthy of customers.  The rash of synthetic identity profiles created over the last 3 years with seemingly excellent credit histories is artificially contributing to the boost in average credit scores.

#3 – Tens of Thousands of Dead People Are Trying to Get Loans

One of the most shocking and unusual findings is just how common it is for dead people to go into car dealerships to finance cars.   In a sample of 2019 auto loan data, PointPredictive data scientists identified more than 8,800 applications that were based on identity information of people who died years ago – an average of over 29 years ago to be exact.

By matching the Social Security Death Master File (which contains the records of which social security numbers have been reported as deceased) against incoming applications, the data scientists identified that about 1 in every 450 applications (22 basis points) contained social security numbers of dead people.

But the manipulation of credit doesn’t stop there. In that same sample of applications from 2019, more than 11,800 applications contained social security numbers that were issued by the Social Security Administration years before the applicant was born. About 1 in 330 applications (30 basis points) contained social security numbers that could not have been issued to the applicant.

These shocking statistics inform us that the problem of fake credit profiles is real. It’s growing. And it must be addressed.

#4 – Piggybacking and Authorized Tradeline Manipulation Artificially Inflates Credit Scores

Another common method synthetic fraudsters employ is to purchase authorized tradelines to improve the appearance of a synthetic identity profile.  This makes the fraudster appear to have access to a complete stranger’s credit card, adding a good trade line to the fraudster’s credit history, when in reality no such access exists. By purchasing authorized tradelines, the fraudster can boost their profile’s credit score artificially and often skirt a lender’s automated approval process by appearing to be a very good borrower.

Over the last 5 years, a cottage industry has emerged where tradeline brokers sell access to other people’s credit scores to people with bad credit. For a fee of between $250 to $1000, a consumer can be added as an authorized user to an account of someone they have never met.

PointPredictive data scientists evaluated this problem by analyzing new credit and identity profiles that had unexpectedly high credit scores.   They found close to 6,000 applications that appeared to be synthetic identities boosting their credit scores.   About 1 in every 650 applications for auto loans exhibit this high-risk profile activity.

#5 – Credit Washing hides negative credit, artificially boosting credit scores

The practice of credit washing – removing negative items from a credit report by falsely claiming the tradelines were a result of identity theft – is on the rise as well and it’s artificially boosting the credit scores of the people that engage in this shady and illegal practice.

Banks and lenders have reported a sharp increase in the frequency of suspected credit washing. Since 2018, the rate of suspected credit washing attempt has increased 500% and some lenders are reporting that up to 98% of the identity theft claims flooding their offices are frivolous and unsubstantiated. While the dispute is in process, the trade line is by law temporarily removed from the user’s credit history, boosting their credit score.

Tackling the Problem with Synthetic ID Alert™

While the problem of synthetic identity and credit manipulation is growing, PointPredictive is not standing idly by.   PointPredictive has turned to machines to root out and expose attempts in real-time.

Through proprietary artificial intelligence and machine learning algorithms, scientists at PointPredictive have cracked the code on synthetic identity and credit manipulation and launched a solution called Synthetic ID Alert ™.

The solution is available now for production use, scanning millions of applications each month and alerting lenders nationwide.  For information on Synthetic ID Alert, email [email protected]