What is identity theft and how does it happen?
By Allstate
Last updated: January 0001
Millions of Americans are affected by identity theft every year. In fact, according to Javelin Strategy & Research, identity fraud incidence rates and dollar losses also skyrocketed. Consumers lost a total of $27.2 billion in 2024, a 19% increase from the prior year. It’s one of the fastest growing crimes in the country.
Identity theft cases come in all shapes and sizes. Fraudsters can use stolen personal information to open new financial accounts or even obtain government benefits in someone else’s name.
First, let’s define what it is.
What is identity theft?
How does identity theft happen?
Let’s look at the process of how identity theft and recovery happen – typically following the same three-step blueprint. Here’s what you need to know about how identity theft often unfolds — so you can spot the signs as quickly as possible.
Step 1: The acquisition of personal data
The first step of identity theft is when thieves steal your personal data.
This can happen through a variety of means, including hacking, fraud and trickery, phishing scams, mail theft, and data breaches.
Data breaches are among the most common ways identity thieves collect personal data. According to the Identity Theft Resource Center's 2024 Data Breach Report, the number of reported data breaches jumped 211 percent in 2024 — marking an all-time high record.
The majority of Americans have now experienced a data breach. But it’s important to know that even if your personal information — including your Social Security number, address, or other details — has been exposed, it doesn’t constitute identity theft.
Thieves have merely stolen your personal data; they haven’t made use of it. Identity theft is what happens next.
Step 2: The use of the stolen identity
The next step of identity theft occurs when thieves begin using the personal data they’ve collected.
This can result in a series of trials where thieves test the validity of the stolen information. If a scammer is able to successfully use your information for their financial gain, it probably means you’re experiencing identity theft.
Some of the most common ways identity thieves use personal data include:
- Opening new accounts
- Taking over existing accounts
- Selling the identity on the black market
- Acquiring additional identity-related documents, like health insurance cards and passports
- Filing fraudulent tax returns
- Committing insurance fraud
- Renting and stealing rental cars
Step 3: The discovery and correction of identity theft
Some forms of identity theft can be caught right away. For example, victims are likely to notice an unfamiliar account on their credit report.
But unfortunately, other types of fraud can go undiscovered for years. When identity thieves target children, it can fly under the radar because kids don’t typically have credit reports.
The longer it takes to catch identity theft, the harder it might be to untangle.
The correction process can be a lengthy one. Before you become a victim of identity theft, consider getting an identity restoration plan so that you would have a professional helping you through the process, if it happens to you. They may be able to expedite certain steps in restoring your identity and fixing fraudulent actions.