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Data breaches give rise to fraud

[Wednesday, June 19th, 2013]

A record number of data breaches in 2012 led to thousands of customers’ personal information being leaked, according to a report by Javelin Strategy and Research.

The information is used by thieves to rack up charges on existing credit cards, open new accounts, and steal people’s identities. Victims of the 1,611 security breaches that occurred last year had a one-on-four chance of becoming identity theft victims, say the report’s authors. Fifty-one percent of identity fraud victimswere targeted as the result of a data breach and not through any negligence on their part.

The increasing data breach and identity fraud problem can spell bad news for consumer credit scores. A person with good credit could have their credit ruined by identity fraud, leaving them with limited credit or even no credit. Without good credit, people find themselves with limited options for loans. Consumers who are unfairly categorized as having subprime credit scores may be charged higher interest rates and turned down for mortgages, credit cards and auto loans.

One of the largest security breaches in history occurred in South Carolina last year, when the Department of Revenue was hacked and 6.3 million Social Security numbers were stolen. The compromised Social Security numbers caused many lost hours for victims who spent time on the phone closing accounts, putting fraud alerts on their credit histories and dealing with government agencies to report fraudulent or suspicious activity. The report estimates that the breach in South Carolina cost $776 per consumer affected. Merchants felt the impact even more, with an estimated loss of $5.2 billion.

To prevent data breaches, the Javelin report urges businesses to stop using Social Security numbers for identity verification and implement better procedural oversight.

Consumers who think they may have been the victims of fraud, resulting in no credit or limited credit, should contact the three major credit bureaus and get copies of their credit reports. They can examine the reports and make sure there is no unrecognized activity or unfamiliar accounts listed.

There is only so much that consumers can do to protect their information, the Javelin survey authors said. While shredding papers that have sensitive information, safeguarding account numbers, and being careful about securing online activity are all good steps to take, corporations must make a greater effort to secure their databases.

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