This paper examines how a negative shock to the security of personal finances due to severe identity theft changes consumer credit behavior. Using a unique data set of linked consumer credit data and alerts indicating identity theft, the authors show that the immediate effects of fraud on consumers are typically negative, small, and transitory. After those immediate effects fade, identity theft victims experience persistent, positive changes in credit characteristics, including improved risk scores (indicating lower default risk). The authors argue that these changes are consistent with increased salience of credit file information to the consumer at the time of severe identity theft. Read the paper . (2 MB, 49 pages)
Supersedes Working Paper 14-28 . (645 KB, 48 pages)
Fraud alerts — initial fraud alerts, extended fraud alerts, and credit freezes — help protect consumers from the consequences of identity theft. At the same time, they may impose costs on lenders, credit bureaus, and, in some instances, consumers. We analyze a unique data set of anonymized credit bureau files to understand how consumers use these alerts. We document the frequency and persistence of fraud alerts and credit freezes. Using the experience of the data breach at the South Carolina Department of Revenue, we show that consumers who file initial fraud alerts or credit freezes likely do so out of precaution. Consumers who file extended alerts are more likely to be actual victims of identity theft. We find that consumers are heterogeneous in their choice of alerts and that their choices are correlated with important characteristics found in their credit bureau files. These facts are useful for interpreting consumer responses to data breaches and for policymakers. Read the paper .
(584 KB, 40 pages)