Artificial intelligence is fueling a sharp increase in identity theft and fraudulent credit activity, according to a new IdentityIQ Fraud Report that found alerts tied to suspected fraudulent new account activity rose 65% year over year.
The report also found a 39% increase in major derogatory credit events and a 32% increase in derogatory tradelines, indicating that identity fraud is becoming more persistent and financially damaging as criminals increasingly use AI to automate scams, create synthetic identities and exploit stolen personal information.
“Artificial intelligence has changed the game,” said cybersecurity expert Michael Scheumack, chief innovation officer at IdentityIQ. “Criminals aren’t just stealing identities. They’re using AI to automate attacks, create highly convincing scams, and open fraudulent credit accounts at a scale we’ve never seen before. That makes fraud harder to detect, faster to spread, and far more damaging.”
AI Is Reshaping Identity Theft
The report found that identity theft has evolved well beyond stolen credit cards and isolated fraud incidents. Criminals now use AI to generate convincing phishing emails, clone voices, build fraudulent banking websites, and create synthetic identities that can appear legitimate to lenders and financial institutions.
Rather than targeting individual victims one at a time, fraudsters can launch thousands of personalized attacks simultaneously while quickly adapting to new security measures.
“This isn’t just another technology shift. It’s fundamentally changing how identity fraud works,” Scheumack said.
The IdentityIQ findings align with broader national trends. According to the FBI’s Internet Crime Complaint Center (IC3), the agency received more than 22,000 AI-related fraud complaints in 2025 totaling nearly $893 million in reported losses, the first year it formally tracked AI-enabled fraud.
Fraud Is Creating Long-Term Financial Damage
The report suggests the greatest financial damage often occurs after fraudulent accounts have already been opened.
When unauthorized credit cards or loans remain undetected, balances grow, payments are missed, and accounts eventually move into collections or become charge-offs. Those negative credit events can remain on a consumer’s credit report for years, lowering credit scores, increasing borrowing costs, and making it more difficult to qualify for future financing.
“In many cases, consumers don’t realize fraudulent accounts exist until they receive collection notices, are denied credit, or notice an unexpected drop in their credit score,” Scheumack said. “By then, recovering from identity and financial loss can take months or even years.”
The increase in fraudulent new account alerts, major derogatory events and derogatory tradelines suggests identity theft is increasingly creating long-term financial consequences rather than isolated incidents.
Synthetic Identity Fraud Continues to Expand
The report identifies synthetic identity fraud as one of the fastest-growing threats facing consumers, lenders and financial institutions.
Unlike traditional identity theft, synthetic identity fraud combines legitimate personally identifiable information, such as a Social Security number, with fabricated names, addresses or birth dates to create entirely new identities. These synthetic identities can establish credit histories before criminals exploit them to commit financial fraud.
“As AI improves criminals’ ability to generate realistic identities and automate applications, synthetic identity fraud will likely become one of the fastest-growing forms of financial crime,” he said.
Early Detection Is Becoming More Important
Scheumack said consumers should take a proactive approach to identity protection as AI shortens the time between when personal information is compromised and when financial damage occurs.
He recommends regularly monitoring credit reports and identity activity, using strong passwords and multi-factor authentication, freezing credit files when appropriate, and independently verifying unexpected financial requests instead of responding directly to emails, text messages, or phone calls.
Families should also consider establishing a family password to help identify AI-generated voice cloning and deepfake impersonation scams.
“Consumers can no longer rely on traditional warning signs,” Scheumack said. “A phone call may sound exactly like a family member, an email may perfectly mimic a financial institution, and a fraudulent website may be nearly impossible to distinguish from the real one. Early detection has become one of the strongest defenses against AI-driven identity fraud.”
As AI-driven identity fraud continues to evolve, Scheumack said prevention and early detection are becoming just as important as recovery. Credit monitoring, identity theft protection, and real-time fraud alerts can help consumers identify suspicious activity before it escalates into lasting financial harm.
