New account fraud — where a thief uses your personal information to open credit cards, loans, or utility accounts — is the most common form of identity theft. Here's exactly how it works and how to stop it.
New account fraud is the most common form of identity theft, accounting for the majority of reported cases each year. It happens when a thief uses your personal information — name, Social Security number, date of birth, and address — to apply for credit cards, personal loans, auto loans, or utility accounts in your name. The thief receives the credit or service; you receive the bill, the collection calls, and the damage to your credit score.
The personal information needed to commit new account fraud is widely available. Data breaches at retailers, healthcare providers, and financial institutions have exposed hundreds of millions of Americans' personal information. Dark web marketplaces sell complete identity packages — name, SSN, date of birth, address, and sometimes mother's maiden name — for as little as $10 to $25 per person.
How do you know it's happening? The first sign is often a hard inquiry on your credit report from a lender you've never contacted. Hard inquiries appear when someone applies for credit in your name — if you see one you don't recognize, investigate immediately. Other signs include receiving credit cards you didn't apply for, collection calls for accounts you didn't open, or a sudden drop in your credit score.
The most effective prevention is a credit freeze — also called a security freeze — at all three bureaus. A credit freeze prevents lenders from accessing your credit report to approve new credit applications. Since lenders won't approve credit without checking your report, a freeze stops new account fraud cold. Freezes are free at all three bureaus, can be placed and lifted online in minutes, and do not affect your existing credit accounts or credit score.
To place a credit freeze: visit each bureau's website separately — Equifax.com, Experian.com, and TransUnion.com — and create an account. The process takes about 5 minutes per bureau. You'll receive a PIN or be able to manage the freeze through your account. When you need to apply for credit, lift the freeze temporarily (you can specify a date range), apply, then refreeze. The temporary lift takes effect within minutes online.
A credit freeze doesn't protect against all forms of identity theft — it won't stop someone from using your existing accounts, filing a tax return in your name, or committing medical identity theft. But for new account fraud specifically, it's the single most effective tool available. Pair it with credit monitoring to catch any inquiries that slip through, and check your credit reports annually to verify no fraudulent accounts have been opened.
Safety 1st Editorial Team
This article is credited to Safety 1st Editorial Team. Safety 1st Consumer Protection has republished this content with attribution.