How to Spot Child Identity Theft

Family and finances can be a tricky mix. We often hear stories, for instance, about parents co-signing for a credit card so their child can build credit only to have the offspring’s reckless charging lead to a bill neither party can afford to pay. Addressing this type of issue is delicate enough, but what happens when traditional family roles are reversed and a parent’s bad spending habits or, worse, criminal actions start to wreak havoc on their child’s finances?

A Case of Child Identity Theft

There are two main ways in which a parent can max out credit cards in their child’s name. In the first version, the parent uses their son’s or daughter’s Social Security Number to open up a bunch of accounts (not necessarily limited to credit cards) without consent and/or their child even knowing about it. “That is clearly a violation of the law,” said Bruce McClary, vice president of public relations and external affairs at the National Foundation for Credit Counseling, and, should you become aware of such a problem, it may be in your best interest to address it the same way you would had a total stranger committed similar identity theft.

In these instances, victims of identity theft should contact law enforcement, file a complaint with the Federal Trade Commission and dispute the accounts with both the creditors and the three major credit bureaus to stem any damage being done to their credit scores and to ensure they aren’t held liable for the debts run up in their name. They may also want to consider a credit freeze so that no additional cards or loans can be taken out.

Of course, taking this type of action against a family member can be “a deeply personal decision,” Thomas Nitzsche, media relations manager for ClearPoint Credit Counseling Solutions, said, and, depending on your specific situation, you may want to try working with a parent on a repayment plan. Keep in mind, however, if significant credit damage has occurred, pressing charges may be “the only way to get the derogatory info off the credit reports,” he said.

Joint Accountholder Problems

In the second scenario, a parent opens a joint credit card account for their son and daughter, perhaps with the best intentions. (The Credit CARD Act prohibits issuers from granting credit cards to anyone under 21 without a co-signer or source of income, so it’s fairly commonplace for family members to help younger generations get started when it comes to credit.) But poor spending habits, lack of discipline or extenuating circumstances, like unexpected job loss, could subsequently cause mom and dad to run up bills they can’t pay off.

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Joint accountholders are both considered liable for any activity associated with the card, so there are serious ramifications for the child should these debts go unaddressed. They could face a judgement (and later a wage garnishment). Plus, any negative activity in the interim, like a high balance or a missed payment, will (as with identity theft scenarios) hurt their credit score and make it harder to secure other loans.

Fortunately, when it comes to most joint credit cards, both parties “have the authority to close the account,” Nitzsche said, so, if mom and dad’s credit card spending becomes an ongoing issue, you may want to go ahead and do just that. Depending on the bank’s policy, you also may be able to simply remove yourself from the account and leave it open in your parent’s name, (though many financial institutions will pull the remaining accountholder’s credit again before agreeing to the changes).

You can call up your issuer to learn what their policies are and what specific options you and your parents may have. You also may want to try to negotiate a repayment plan or lower interest rate with them, since, even upon closing the account, you and/or your parents will be responsible for paying any remaining balances. While you figure out exactly what to do, it’s a good idea to keep the lines of communication open.

“Try to talk about it first,” Nitzsche said, so all the parties involved know what’s going on and what any potential ramifications may be. If talking things through proves futile and mom or dad appear content to leave you with the bills, you may want to consider taking legal action to get them to pay for their charges.

Monitor Joint Accounts

Both scenarios speak to the importance of regularly monitoring your credit card statements and checking your credit reports to spot potential fraud or damaging behavior right away. (You can get your free annual credit reports at AnnualCreditReport.com and you can see your credit scores for free each month on Credit.com.)

You should also carefully vet any co-signers or joint accountholders you are considering taking a credit card or other loan out with — even when they’re related to you.

“Even though it’s an awkward conversation, you should ask questions to your parents about how they manage their money,” McClary said. “You need to know what the other people are doing [financially] and how healthy their credit habits are, because any misstep they’re doing is going to come back to you as well.”