Identifying fraudsters through credit scoring and profiling
There is a significant connection between consumers’ high credit scores and the propensity for identity fraud victimisation. Recent analysis conducted by Experian in the UK and USA, identified that the occurrence rate of identity fraud rises dramatically as credit scores increase.
In a recent study analysing approximately 800,000 records from 2007–2008, Experian found that approximately 48 percent of all identity fraud detected was found within the highest credit scoring 20 percent of the sample population.
The records consisted of self-reported frauds supplied by institutions within the telecommunications, retail banking, bank card and retail card sectors. In segmenting identity fraud occurrence rates by credit score ranges, the study also revealed that the top credit scoring 10 percent experienced nearly 30 percent of detected identity fraud.
In part, the findings may be a simple reflection of the current state of lending criteria in general. Credit scores give organisations an indication of delinquency and default risk. A higher credit score means the applicant is less likely to default and, consequently, is more desirable to a credit grantor. Therefore, just as in cases of legitimate activity, an application for credit is more likely to be approved when the applicant has a high credit score rather than a low credit score. In essence, those with lower credit scores may be relatively safe from identity fraud simply because their scores are likely to be a barrier to entry in opening a credit-based account such as a credit card or a loan.
Similar studies in the UK of the ‘Victims of Fraud’ have gone a step further and developed
a set of profiles for the highest risk groups of individuals. The analysis reveals that the typical identity fraud victim is aged between 30 and 50, with this age group representing 55% of all identity fraud victims. Another noticeable observation from the study is statistics showing that in 2008, fraudsters shifted their focus towards targeting victims living in rented accommodation, due to the vulnerability of their personal details where communal mail is delivered through one letterbox. While wealth and status can single out certain types for being targeted, those renting – either privately or from local authorities – are at high risk of becoming victims of identity fraud particularly in the UK.
A specialist consumer classification system, Financial Strategy Segments (FSS), was used for the UK report. It identifies consumers and classifies them according to their financial behaviour, through FSS, Experian has been able to identify those consumer groups that are statistically more likely to become victims of identity fraud. The full report highlighted the ten most at risk groups of identity theft, the table below shows the top three.
| Type | Description | Risk Index |
| Looking to the Future | Young singles often in shared rented accommodation earning reasonable wages and optimistic for the future | 223 |
| Limited Livelihoods | Singles in their 30s in mostly council rented flats. Unemployment is a problem but debts are usually controlled | 184 |
| Up & Coming Elite | High-flying graduates privately renting in good areas while they pay off student debts and save for a mortgage deposit | 168 |
Additional information is available in the report. Source: Experian
The high level of identity fraud identified within London and the surrounding towns during the UK study was attributed to the high numbers of organised criminals operating in these areas. The increased likelihood for residents of these areas to use high class restaurants, clubs and other venues is thought to provide an opportunity for fraudsters to target these locations to obtain information.
Identity fraud poses a significant risk to organisations, especially with the current emphasis on bad debt and delinquency levels, which is where a lot of unidentified fraud cases end up. This can cause wasted resource within the collections areas, who should be concentrating on recovering funds from genuine customers.
There are a number of steps that organisations can take in order to counter the threat of identity fraud. These include:
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Review fraud processes and procedures. Are they adequate to counter the identity fraud threat? This not only includes the automated processes, but also the manual elements including investigative procedures and area structure. |
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Ensure front line staff receive adequate training and are able to spot identity fraud at application stage. This training should include genuine case studies, and the wider business implications of fraud. Training should also be reviewed and updated regularly in order to keep abreast of new developments and threats. |
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Assign scores and prioritisation to workflow in order to spot identity fraud and ensure that the cases most likely to be fraudulent are worked first. |
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Use of bureau data to identify fraudulent behaviour, this can include number of searches within a specific time period, and time at address v no trace on voters roll or active CAIS |
Matthew Eaton
Fraud Business Consultant
Decision Analytics
Experian
| Read more about these studies |
| Access the Insight Report (US version) » |
| Access the Victims of Fraud Report (UK Version) » |
| Read about fraud prevention |
| Visit the website to read more » |
| Related links |
| CreditExpert » |
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