Identity theft is one of the most prevalent crimes of the 21st century. Some of the more common forms of identity theft are unauthorized credit use and fraudulent tax refund claims. Another form of identity theft is called "Synthetic Identity Theft" and occurs when a criminal uses a Social Security Number in combination with fake information. Minors with no credit history are particularly susceptible to this type of identity theft.
As financial advisors we recommend that our clients who have children take proactive steps to review their children's credit report periodically and watch for any signs of identity theft.
Why are children at such a risk?
Children have clean credit histories which are attractive to identity thieves. Identity thieves also know that many parents don't think to monitor their children's credit reports so the likelihood of their crimes being identified is minimal. If a child's credit is stolen it may take years before it is even noticed like when they apply for their first credit card, or student loans. Over that time period the thief would have caused terrible damage to their credit and quite a headache for all involved to try and correct the issue.
What options do I have to protect them?
Parents can check to see if there is open credit on their children's credit reports by coordinating with the three major credit bureaus, Experian, Equifax and Transunion. The Bureau of Consumer Financial Protection has an online guide explaining the process for requesting a child's credit report from each credit bureau. Experian also allows parents to easily scan their child's Social Security Number to see if a credit file exists under their individual number.
Parents can also use credit freezes to protect their child's credit from future identity theft. A credit freeze can restrict access to a child's personal credit report which makes it nearly impossible for any types of credit to be opened in their name.
As of last year, it no longer costs anything to implement a credit freeze at any of the major credit bureaus. Each credit bureau has its own process for requesting security freezes on a child's credit file. Follow the links below to get to each one which need to be done individually.
Once the freeze is added to a child's credit files, each credit bureau will notify you of the process for managing the freeze going forward. Each credit bureau will assign a credit freeze PIN number which will be used to unfreeze a child's credit file in the future. It's important that you hold onto this number so a child can get credit when they're a teenager or young adult.
Never share a child's Social Security Number with someone who doesn't have a valid reason for needing it. Safeguard their Social Security card, bank account numbers, and credit cards where they are authorized users. Teach kids about the importance of protecting their personal information at school, part-time jobs and on social media.
Set children up for success by ensuring that they have pristine credit at the first time they attempt to obtain credit. A small investment of time today can save you from huge headaches in the future.