What is an Identity Score?

By now, almost everyone knows what a credit score is and how it affects so many important facets of our lives. However, very few are familiar with an identity score, its calculation or its importance. When talking about identity scores, it’s helpful to remember that identity theft creates nightmares for lenders and merchants as well as each victim. Identity theft costs victims, lenders and businesses $48 billion annually, and that financial toll keeps rising every year. Businesses have begun using identity scores as a means of limiting their exposure to loss. Just as a credit score is a measurement of a person’s likelihood of repaying a loan and managing credit responsibly, an identity score measures the probability that a person applying for a new credit card or another line of credit actually is who he or she claims to be.

The need for identity scores has created a completely new industry. Companies specializing in calculating a person’s identity score sell this information to businesses the same way that credit reporting bureaus sell a person’s credit score. Indeed, the credit bureaus (Experian, Equifax and TransUnion), along with other companies, are among those formulating these scores and selling the information. Selling ID scores to credit card companies alone generates an estimated $1 billion yearly, and more lenders and businesses are willing to pay for this information. Because ID scores are a growing revenue stream, the companies that calculate them are reluctant to disclose how they do it. However, the following factors are part of the calculation:

• The applicant’s name
  Identity thieves prefer targets with common surnames, e.g. John Smith or Jennifer Johnson, simply because they are common and much harder for investigators to differentiate.
• Credit behavior patterns
  For example, if the applicant seldom opens new lines of credit or does on a regular basis, and a number of new credit lines are suddenly open in a short period, that behavior can either seem normal or be a red flag.
• Online information
  Investigators perform Internet searches for the applicant, looking for Facebook pages, websites, forum memberships and other information that can confirm his or her identity.
• Known data breaches
  If an applicant’s name was included in a known data breach, it would substantially raise the risk of identity theft and would cause the applicant’s ID score to fall.

An identity score is basically an educated guess as to whether an applicant is who he or she claims to be. The factors listed above and others either add to an applicant’s credibility or detract from it. Like credit score calculations, it is likely that each factor weighs differently in determining an ID score, but the precise calculation of these scores remains unknown. What we do know is that all consumers are at risk for identity theft, and it is up to everyone to take steps to prevent it.