The consumer credit industry--broadly defined as consumer lenders, credit grantors, and credit bureaus--is facing increasing costs from losses, angry consumers, accusations from legislators, and a potentially damaged image. But many organizations within the industry--lenders, credit card issuers, and bureaus--are working together to determine how credit fraud occurs and the most effective ways to fight it.

How Credit Fraud Occurs
Fraud experts in the credit industry believe the key to credit fraud is the consumer's credit report. It tells criminals everything they need to know to assume a different identity--and a new credit history. While credit report data is one source of the problem, other types of identifying information-such as credit accounts numbers and Social Security numbers--are extremely accessible from other sources.

According to the U.S. Public Interest Research Group, information brokers sell personal information to anyone who can afford it, including investigators, insurers, and employers. When this information is sold to someone who intends to commit credit fraud, the information is abused, and victims are left to clear up the damage to their credit reputations.

Preapproved credit cards offer criminals another opportunity to take over credit accounts. When a piece of mail containing the offer is stolen, criminals call the credit card issuer and request a mailing address change. Unless the issuer follows strict phone identification practices (such as asking callers for detailed information to verify their identity), the credit card is mailed to a new address. The criminal has access to the card, and the consumer is unaware that a new credit account has been issued.

Other more common events that can result in credit fraud occur when wallets, purses, briefcases--or any other personal item that contains your credit cards--are stolen or lost.

Strategies for Combating Credit Fraud
Incidents of credit fraud have increased over the past two years, and the issue has taken on increased urgency. Major players in the credit industry are working together, discussing defensive strategies for combating credit fraud.

Although credit reports are considered one major source of credit fraud, in many cases, employees for credit card issuers, banks, or retail stores may be authorized to pull credit reports on thousands of consumers a month to determine their creditworthiness or potential risk. Credit fraud occurs when the information gets into the wrong hands, and the Associated Credit Bureaus, Inc., a trade association based in Washington, D.C., is examining ways to limit access to credit reports.

The three major credit bureaus--Experian, Equifax, and Trans Union, are also looking at ways of controlling access to credit information. Some of the ideas they are considering include:

• Frequently changing the passwords employees use to access consumer credit reports.
• Dedicating computer terminals to specific employees who are authorized to access reports.

Other measures credit bureaus have taken to prevent fraud include:

• Suppressing Social Security numbers. When credit grantors in specific industries request a credit report from Experian, the information on the report will tell them whether the Social Security number entered during the inquiry was correct, similar, or incorrect. But the number itself will not be printed on the credit report.
• Dropping several digits from credit account numbers-or eliminating the numbers entirely--from credit reports provided to credit grantors.
• Preventing criminals from fraudulently accessing consumer credit information from other credit bureaus. When one credit bureau discovers fraudulent credit activities, they immediately notify the other credit bureaus.
• Requiring businesses to meet the following requirements before they are allowed to access credit information:
  • Proof of a permissible purpose under federal law
  • A background check and on-site inspection of the business
  • A current business license
  • A signed contract requiring the business to use the data properly
• Placing a security alert on your credit report when you have been a victim of fraud. This alert warns potential credit grantors that your identification has been used fraudulently, and stays on your report for 60 days.
• Placing a fraud alert statement on your credit report that will stay there for up to 7 years, asking credit grantors not to approve any new accounts without calling you first. This will prevent you from getting instant credit-but it will also prevent criminals from obtaining unauthorized credit in your name.

Credit card issuers are also taking extensive steps to help protect consumers from fraud, such as:

• Adding your photograph, special characters, or holograms to your card to reduce counterfeiting.
• Requiring you to call an 800 number to verify your identity before using your card.
• Comparing all new credit applications against credit bureau and in-house databases containing fraudulent criminals, addresses, and other fraud-related
• Verifying your identity if you or an impostor attempts to change your address when returning a preapproved credit offer.
• Notifying you that your card has been sent. If you receive the notification but not the card, you should contact the card issuer immediately.