What's the Difference Between Identity Theft and Identity Fraud?

Most people use identity theft and identity fraud interchangeably to describe the same crime, but there are very important differences between the two terms. Since accurate information is one of the best ways to prevent becoming a victim of either crime, it's definitely in your best interest to know the difference.

Here are brief explanations of identity theft and identity fraud:

• Identity Theft. When a thief gains access to your personal information, such as your Social Security number, credit card account information, your mother's maiden name, your driver's license number, and other important information to impersonate you, he (or she) is committing identity theft. Once the thief has this information, he usually opens new credit card, cellphone, and other types of accounts in your name. In legal terms, these activities are considered "true name identity theft." A thief can also use your information to access your existing accounts in a crime that the pros refer to as "account takeover."

• Identity Fraud. Identity fraud describes a crime in which a thief creates a fictitious person and that person's personal information. Rather than stealing someone's identity, the thief takes the easier approach of conjuring up an identity from his or her imagination. A thief committing identity fraud usually commits "true accounts identity theft" as well by opening new lines of credit in the fictitious person's name, but the merchants are the victims of identity fraud.

As you can see, there are important distinctions between the two categories of crimes. Victims of identity theft include the person who had his or her personal information stolen, as well as the merchants, utilities, and/or other businesses defrauded by the thief. Victims of identity fraud include the lenders, credit card companies, merchants, and/or other organizations, but not the fictitious person. In the bigger picture, we're all indirect victims of identity fraud, since merchants, utility companies, credit card issuers, and other organizations have to factor the costs of identity fraud into their prices, rates, etc., as part of their costs of doing business.

However, these distinctions matter little to victims of identity theft. They must contend with once-healthy credit scores that are now weak, angry letters and phone calls from collection agencies, and the considerable hassle of having someone turn their financial lives upside-down.