"My first application came back denied," Olivia McNamara remembers. "I tried another bank, but that one came back denied, too." A recent high school graduate, McNamara was trying to establish a credit history -- and prepare for college -- by getting her first student charge card. Unfortunately, the banks weren't cooperating.
"There was no reason for my applications to be turned down," she recalls. "I called credit bureaus, but they were no help."
Linda McNamara, Olivia's mother, had recently been stung by an information security breach and was working with AllClear ID, an identity-theft protection company. On a hunch, she asked them to look into her daughter's problem. What they discovered came as a shock: For 10 years, other people had been using Olivia's social security number.
"They took out $1.5 million in loans to buy boats and cars," Olivia says. "They had multiple credit cards out in my name, and had defaulted on several loans." In other words, even though she still didn't have her first charge card, Olivia's credit history was already in tatters.
A Widespread -- and Growing -- Problem
Olivia isn't alone: According to a recent survey by AllClear, of 27,000 records, almost 11% of children have had their personal information compromised -- and the numbers are getting higher. Today, children are 35 times more likely than adults to have their identities stolen. To make matters worse, because children don't generally use their Social Security numbers, the breaches can remain hidden for years, giving identity thieves virtually endless opportunities to manipulate records.
And the problem itself is tremendously complicated. As Jamie May, AllClear's chief investigator, explains, "The tools used by scammers run the gamut, from physical break-ins to highly sophisticated viruses that scan computers for tax returns and school records." Once an identity has been taken, it can be resold dozens of times to multiple criminals. "We've seen identities for sale for as little as $40 in chat rooms," May says. "Fraudulent Social Security cards often show up in flea markets."
There are several different types of identity thieves who use the stolen information for a variety of scams. At one end of the spectrum, May notes, "some identity thieves are illegal immigrants trying to establish lives." In 2011, AllClear found 3,000 children whose records had been breached; some of those victims' Social Security numbers had been used to establish 2,353 utility service records, apply for 214 driver's licenses, and register 345 cars.
For those people simply trying to establish a life, the goal is to use the stolen information in as unobtrusive a manner as possible. But serious thieves use stolen information in elaborate moneymaking schemes. Having your identity fall into the hands of this type of scammer can be much more damaging, both economically and in terms of the difficulties they later create for the children they exploit.
"They follow the same methods we advise young adults to use when building their credit scores," May explains, noting that many identity thieves start by opening cell phone accounts. "They're a great way to establish a fraudulent -- or, for that matter, a real -- credit file. The scammers then move onto small loans, then larger loans, and so on."
In Olivia's case, her stolen identity had been used to open 42 separate accounts, including several credit cards, several car loans, and at least three mortgages. According to AllClear, almost all of the accounts are in default.
A Flaw in the System
But how can multiple scammers use the same Social Security number? The key, May explains, is that they exploit a flaw in the system: "Credit bureaus don't treat Social Security numbers as unique identifiers." In other words, when a credit agency runs a check, it generally hits three data points -- a Social Security number, a birth date, and a name. "This is why we often see the same number used by different identity thieves," May says. "When it's attached to a different name, it doesn't necessarily flag an alarm at credit bureaus or in the government."
Making things even easier for identity thieves, young people's Social Security numbers are often left poorly protected. Schools and the organizations associated with a host of children's activities often use them as a basic form of identification. And every group that has access to a child's Social Security number offers another opportunity for a data breach. May takes a hard line: "We advise parents to treat their children's Social Security numbers as top secret, confidential information. When somebody asks you for your child's Social Security number, don't be afraid to question them."
The Cost to Victims
On the bright side, victims of identity theft aren't held responsible for the funds taken out in their name. But the price for victims still can be measured in many long hours of frustration as they work to clean up their records, and also lost opportunities. AllClear's May notes that, in some cases, identity thieves use stolen Social Security numbers when they're arrested, a process that can leave their victims with criminal records -- and unexpected costs: "Cleaning that up requires that they hire an attorney," he says.
Even identity theft victims who don't have to deal with criminal records often end up paying in other ways. As May points out, "Sometimes, a kid with a stolen identity has to wait a semester to start school, or is stuck in the foster system, or misses out on an internship. It can take months or years to fix these problems."
That has certainly been the case with Olivia, who is still struggling with her deeply tainted credit record. Her mother, Linda, has worked hard to resolve the issue. "I have spent many, many hours on this mess," she notes. "I sent at least three letters to each of the credit agencies and tried many times in vain to get someone on the phone to talk to me."
It has even taken a toll on Olivia's financial development. She had hoped to begin building a strong credit history while in college, but she's had to shelve that plan until her identity theft troubles are resolved. For now, she notes, "I'm still financially dependent on my parents, and I still live in the dorms, so it's not a big issue. But if it's not solved by the time I graduate and move into my own apartment, it could be a real problem."
Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at email@example.com, or follow him on Twitter at @bruce1971.