Protecting Yourself from ID Theft

Identity theft isn’t making the headlines it did a few years ago. Yet, it’s still a problem. The FTC  estimates that annually about 9 million Americans have their identities stolen, and this costs consumers about $5 billion. The FTC says fixing your credit after a theft takes about 175 hours and costs $1,173. In addition, a bad credit report can cause you to be denied a mortgage or auto loan or even a job.

The Baby Boomers and those older are big targets for ID theft. They tend to have money and good credit ratings. Plus, they’re vulnerable from a number of sides, such as anyone who helps around the home.

Credit card companies have tightened their protections for customers. Their computers are programmed to identify unusual transactions, and the companies quickly contact the cardholder or freeze an account. But that doesn’t stop people from applying for new cards or loans in your name or taking other actions.

If you really want to prevent ID theft, consider these steps.

Check credit reports. You’re entitled to an annual free copy of your credit report from each credit reporting firm. You should exercise this option annually to see if there are any errors or any activity you didn’t initiate. But this is a weak step. You would be learning about unauthorized credit applications well after the fact. The real benefit of this step is to correct any mistakes in the report, such as having someone else’s history incorrectly applied to your report.

Destroy all debit cards. Many people like debit cards because, unlike credit cards, they draft the amount directly from your checking or other account. You aren’t borrowing money, so interest and finance charges aren’t imposed.

The downside is that you don’t have all the protections of credit cards. Losses from improper use of your credit card are limited to $50. There’s no limit on debit card losses, unless the card issuer voluntarily establishes one. If someone gets your debit card and PIN, they quickly can drain your bank account.

Debit cards also are less attractive after the Dodd-Frank financial regulation law. The law reduced the fees card processors can charge retailers on each transaction. As a result, the card issuers generally eliminated rewards programs and other bonuses. Because of the ID theft potential and lack of benefits, some advisors say to cut up debit cards.

Sign up with credit monitoring services. There are a number of services that track the activity on credit reports by one or more of the credit reporting firms. You can sign up free with these services, and they will inform you of any new activity in your credit report.

Each of the free services generally monitors only one credit reporting firm, usually is owned by the credit reporting firm, and tells you which reports it covers. They also want to upgrade you to a fee-paying service. Usually the free reports are issued at a fixed date, so activity could occur in your account some time before you know about it.

There are other services that will monitor your credit for a fee, such as Lifelock. These firms say they are proactive and will know as soon as there is new activity in your account. They also look for a wider range of activity, such as requests to change your address and let you know immediately of any changes. This proactive approach can stop someone who’s stolen your identity from receiving loans or other credit in your name.

Most of these firms also will help you restore your credit record and reclaim your identity if it’s stolen.

Freeze your credit identity. Probably the most effective way to avoid ID theft is to freeze your credit reports. You can contact each of the three major credit reporting firms and direct them to freeze your credit status. Then, they won’t be allowed to release your information to anyone. With your credit status frozen, even someone who obtained all the details of your identity won’t be able to receive approval for new loans.

You periodically might need someone to have access to your credit reports. You might apply for a new job or seek a mortgage or auto loan. In that case, you can ask the services to unlock your account for a set time period. Usually each time you do this costs $5. Unfortunately, you can’t authorize release of your credit report only to certain people or firms.

When you freeze your credit status, you establish a password or PIN. You need this to unfreeze the account. If you lose the PIN, a process that can take months is needed to verify your identity and unfreeze the credit.

Secure your information. Identity usually is stolen through unsophisticated methods. Thieves can enter a home or steal a wallet, cellphone, or personal computer and find all the information they need. In general, someone who has your name, address, birth date, and Social Security number can cause a lot of damage.

People often leave access to this information exposed. They enter key information in their smartphones or computers. They’ll leave sensitive documents accessible in their homes. Even if there are no valuable objects in your home, it pays a thief to break in and grab blank checks, old financial statements, and your passport or birth certificate. You can go on a short vacation and have all this information stolen while you’re gone. Documents with this information should be shredded and thrown away or securely locked.

This step is especially important for snowbirds or other second home owners.

The three major credit reporting firms are TransUnion, Experian, and Equifax. The federal government mandates annualcreditreport.com, where you can obtain a free credit report from each firm annually. Note that obtaining your credit report is not the same as seeing your credit score. The details of credit scores are considered proprietary, and apparently lenders can determine how the score is computed for them.

These steps won’t completely eliminate vulnerability. There are other ways your Social Security number can be obtained, and a thief can use that to file a false tax return in your name and claim a refund. But the IRS doesn’t hold individuals liable for false refunds (though it isn’t as generous with employers who are victims of ID theft). These are the strongest measures you can take and will greatly reduce your risk.

RW June 2013.