How credit reporting agencies place fraud alerts

It is becoming increasingly easy for scammers to be more successful when it comes to fraud. Whether it’s a data breach or a phishing scam, the financial security of your business can unfortunately be compromised when subject to fraud. 

Although there is not one single solution to preventing this issue, having a fraud alert placed on your business’s credit file is one of the most effective lines of defence. But how exactly do credit reporting agencies place fraud alerts on business accounts?

What is a fraud alert, and why are they effective?

If you notice that there has been fraudulent activity on your business account, you’re able to request a fraud alert. This will be in the form of a notification on your business credit report that warns potential lenders pulling your credit file to take extra precautions to verify the business’s identity. 

This is an extremely effective way of preventing scammers from opening new accounts or taking out loans in your business’s name without your knowledge, essentially committing business (or corporate) identity theft.  When there is a fraud alert on your business’s credit file, it will make it significantly harder to commit fraud at the expense of your business. 

Understanding how fraud alerts work

Once the credit reporting agency places a fraud alert on your business’s credit file, a statement will be included that will alert potential creditors of the fraudulent activity, which will require them to: 

• Verify the identity of your business by contacting you directly to ensure you are the person applying for the credit on behalf of your business. 
• Take reasonable steps to verify your identity before extending new credit to your business. 

How do fraudsters gain the information needed to commit business identity theft?

Business identity theft relies on scammers and fraudsters gaining access to crucial information about the business, which can be obtained through various means. For example: 

• Data breaches: Scammers can find information like financial records, employee information and company registration details through compromised systems. 
• Phishing: Sophisticated emails can be sent that appear legitimate, for example, from a bank or supplier, to trick employees into giving out confidential business information. 
• Publicly available information: A lot of a business’s core information can be accessed publicly through company registries, so scammers can use this information as a starting point. 

• Impersonation and social engineering: Scammers may also directly impersonate business owners or employees through phone calls or emails to gather more information. 

• Malware and ransomware: Malicious software can be used to gain unauthorised access to a business’s computer system, which will allow them to capture data or directly manipulate accounts. 
• Supplier fraud: Scammers may impersonate legitimate suppliers, sending fake invoices or altering bank details to have money sent to fraudulent accounts.
• Business email compromise (BEC): Scammers will attempt to gain unauthorised access to a business email account to send fraudulent invoices, request wire transfers, or redirect payments.

Fraudsters will target certain types of credit on business credit files, such as:

• Business loans
• Business credit cards
• Trade credit or supplier accounts
• Equipment financing or leasing
• Utility accounts

The risks involved with scammers and fraudsters being able to access key business information can be detrimental to your business’s finances and can result in unrecoverable debts or potentially legal fees.

Also, your business’s credit score can be severely damaged as a result of this. Any unpaid debts will appear on your business credit report, which will make it difficult to secure any legitimate loans or attract investors in the future. 

Unfortunately, some investors may also be hesitant to conduct business with your company if it has been associated with fraud. Recovering from business identity theft is a complex and time-consuming process, and can divert valuable resources away from your daily operations. 

It is vital to put preventative measures in place, such as placing fraud alerts with your credit referencing agencies. As well as this, it is vital to keep monitoring your business credit reports, implement robust cybersecurity and train your employees on fraud awareness.

Types of fraud alerts used by credit reporting agencies

Credit reporting agencies will be able to place different types of fraud alerts on your business’s credit file, which can be requested by you as the business owner. Let’s take a look at these in more detail. 

Initial fraud alert 

Credit reporting agencies might place this fraud alert initially if they suspect that something is amiss or notice any suspicious activity on your business credit file. 

An initial fraud alert can be placed without any fraud having occurred, and you can request this if you are concerned that any key business information has been exposed. There is no need for police involvement for this type of fraud alert. 

When this alert is active, any lender or supplier who pulls your business's credit report will see a notification that advises them to take extra steps to verify the identity of the business. 

An initial fraud alert will last on your business credit file for 90 days, but can be renewed if you feel the threat persists past that timeframe. 

Extended fraud alert

An extended fraud alert will offer longer-lasting protection, typically 7 years, providing your business with extended protection after experiencing fraud. This will give businesses peace of mind and allow them to recover from any financial and reputational damage caused. 

You will need to provide the credit reporting agency with a copy of the business identity theft or police report proving that your business has been subject to fraud. Your business will then be removed from pre-approved lists with access to any form of credit, further minimising the chances of experiencing more fraud. 

Active duty military fraud alert

An active duty military fraud alert is highly relevant to sole traders or very small business owners whose personal and business finances are closely interlinked. It is also designed to protect service members (and by extension, their closely linked businesses) who may have limited access to their business accounts while deployed.

As with the initial fraud alert, it will prompt extra verification steps when credit is being applied for using the individual's (and thus often their sole proprietorship's) details. Typically, this fraud alert will remain on the business’s credit file for one year, but it can be extended for longer should the individual be deployed for a longer period. 

How to place a fraud alert

Getting a fraud alert placed is relatively easy for people to do. Let’s take a look at the steps you would need to take to get a fraud alert placed on your business’s credit file: 

• The first step would be to contact your credit reporting agency to place an initial fraud alert. 
• Next, you’ll need to provide the credit reporting agency with the relevant business details
• You’ll also need to provide the credit reporting agency with a phone number on which you can be contacted to verify your identity.
• If you’re requesting an extended fraud alert, make sure that you submit a copy of your police or identity theft report. 
• Lastly, you’ll wait for confirmation from the credit reporting agency that the fraud alert has been placed and will give you details on how it will work moving forward. 

What to do if you suspect identity theft or fraud

There are definitely steps that you can take if you suspect that your business has fallen victim to business identity theft: 

• Be sure to contact your bank or creditors immediately to inform them of the suspicious activity on your business account so that they can close any compromised accounts. 
• File a police report so that you can report the business identity theft to your local police department. This will help provide crucial documentation that will be needed for disputing fraudulent charges and placing extended fraud alerts. 
• You should also report this to government agencies, like Action Fraud. 
• Consider a credit freeze for stronger protection, as this will completely lock down your business credit report, preventing any new credit from being taken out. 
• Be sure to monitor your accounts regularly by reviewing your business’s bank statements, credit card bills and free credit reports for any unfamiliar transactions. 

Placing fraud alerts with credit reporting agencies is a powerful, user-friendly tool in your battle against business identity theft and fraud. By understanding how they work and taking the simple steps to place one, you significantly enhance your business’s financial security against threats of online fraud. 

Also, if you’re looking for efficient credit check packages, Creditserve will help you run these on any company you may be looking to work with. With our services, you’ll be able to assess the risk efficiently, making informed decisions that allow you to mitigate financial risks. 

Contact us at 01992 414222 for more information!