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Some ID theft safeguards better than others

September 24, 2008

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It's no wonder that lately people are worried that thieves might steal their identity. Companies in the protection business are working hard to fan their fears, according to the editors of Consumer Reports Money Adviser.

Those companies pitch a variety of pricey solutions. But it's possible for people to hold on to their cash and still shield themselves from ID theft.

The good news is that the number of identity thefts has declined 23 percent over the past four years, a trend expected to continue until at least 2013. In addition, full-blown ID theft Z - where someone opens new credit-card accounts or commits other crimes using someone's name, Social Security number or other information - is relatively uncommon, occurring in only 1 percent of all U.S. households in 2005, according to the U.S. Department of Justice.

The most common form of ID theft is old-fashioned credit-card fraud and check kiting: Someone uses an existing credit- or debit-card account to steal money and then runs. So the bulk of ID theft - 71 percent, in fact - is nothing new. What's more, in most cases, liability is legally limited and card issuers or banks pay the direct losses, not the theft victim.

Here are seven ways to safeguard personal and financial data, along with CRMA's assessment of the paid protection related to each.

1. Place security freezes on credit reports. Security freezes prevent anyone from looking at credit reports except companies that already have a financial relationship with you, certain government agencies and other exempt entities. You can freeze your records at each of the three major credit bureaus: Equifax (www.equifax.com), Experian (www.experian.com) and TransUnion (www.transunion.com). CRMA's take: Even if your identity has not been compromised, you should do it to shut out ID thieves before they can cause credit damage. But keep in mind that while the freeze is on, you can't open any credit accounts.

2. Place fraud alerts on credit reports. Fraud alerts signal lenders that someone might be the victim of ID theft and that it should verify the identity of a credit applicant. Go to one of the three major credit bureaus' Web sites to place a free 90-day fraud alert. CRMA's take: It's not necessary if someone has security freezes in place.

3. Opt out of preapproved credit offers, which stop credit bureaus from selling names to lenders. That, in turn, keeps them from mailing preapproved credit-card offers, which are easy for ID thieves to steal. It's free at www.optoutprescreen.com or call (888) 567-8688. CRMA's take: Do it. Opting out stops most but sometimes not all such offers.

4. Check credit reports, which keep people up-to-date on the positive and negative payment information on all their credit accounts. It's free, once a year, by law. Go to the joint Web site of the three credit bureaus, at www.annualcreditreport.com, to order free yearly reports. CRMA's take: Do it at least once a year to check for and dispute errors.

5. Get three-bureau credit monitoring, which sends e-mail alerts when new accounts and other items appear on credit reports. Equifax charges $12.95 a month. CRMA's take: Don't do it. A security freeze should stop the opening of fraudulent new accounts.

6. Get a fraud-prevention and detection plan, which goes beyond credit monitoring and fraud-alert placement services by scanning public records, monitoring black-market Web sites and so forth. Services charge anywhere from $96 to $240 a year. But it's possible to obtain much of what they provide at no charge. CRMA's take: For someone who's taken the previous precautions, there's little reason to sign up for this costly protection.

7. Buy ID-theft insurance or guarantee, which covers any losses incurred - up to $2 million - if the promised fraud protection doesn't actually protect from ID theft. CRMA's take: Don't do it. Getting the coverage often requires buying unnecessary services. The "protection" promises are overhyped since most victims' out-of-pocket costs are zero.

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