The Best Defenses Against Identity Theft
Earlier this week, I wrote about "free" credit report services; today, I'll discuss credit monitoring services and whether they're worth paying for.
Companies selling credit monitoring services certainly to be doing well. About 24 million consumers have signed up for these services, for which they pay about $60 to $180 per year. The providers of these services claim they'll protect you from identity theft by regularly watching for changes on your credit report and then sending you timely alerts when changes are detected.
But this may create a false sense of security for many folks -- the fact is that some forms of ID theft may not appear on your credit report for a long time, if ever. One reason for this is because of the credit-bureau practice of creating temporary "fragmented files" using account information with your Social Security number, but a different name, address, date of birth, etc. As a result, some consumer advocates warn that credit monitoring services are like an alarm that warns you long after the break-in has occurred.
But it comes as no surprise that ID theft protection services are a rapidly growing area of business. ID theft protection services include a range of products from credit monitoring to ID theft insurance. Credit reporting companies, such as Equifax (Equifax Credit Watch), Experian (Experian Credit Manager), and TransUnion (Credit Monitoring) offer services that monitor a subscriber's credit report, sending emails when there are inquiries or changes to the report. And fraud resolution insurance is often part of the package.
But consumer advocates warn that these services can be costly and incomplete, as many only check activity on one credit bureau report, not all three. They also say that a consumer can do themselves for free what most of these services offer to do for a fee. Of course, I can cut my own lawn but I might be inclined to pay for the convenience of having someone do it for me. I think that if you are concerned about ID fraud and prevention, then the nominal fee for these services is well worth the cost.
A number of insurance companies offer identity theft insurance. For a typical cost of $25 to $50 per year, these policies provide maximum benefits of $15,000 to $25,000 towards rehabilitating an identity, including costs such as attorney's fees, lost wages, loan application fees, and notary, phone, and postage costs. What is not covered are the actual dollars stolen from your account or fraudulent charges made on credit cards -- an identity theft victim must sort these issues out with their bank and credit card companies. The biggest limitation is that this insurance excludes fraud that had occurred before buying the insurance; this is an issue since it can take a long time for ID fraud to become detected.
Consumer advocates concede that credit monitoring services or insurance can be worth the cost for people who have been a victim of ID theft or who are at higher risk, such as someone who keeps a lot of money in his or her banking accounts, checks activity infrequently, or travels abroad often. But some people may already have ID theft insurance and not know it -- several insurance companies provide it as a standard or additional feature of their homeowner's insurance policies, and some credit card companies also offer it as a part of their cards benefits. So before you buy these kinds of services, check to see what kind of coverage you've got already.
ID Fraud Self Prevention
Here are a few things you can do to help detect and reduce the likelihood that your personal and account information will be used fraudulently:
- Carefully review all activity on your credit card and bank statements and dispute or report unauthorized activity as soon as it's detected.
- Review your credit reports regularly, looking for changes and any incorrect account information.
- Ask the credit bureaus to place a free fraud alert on your credit report file. You'll need to renew this alert every 90 days, and it warns lenders that they should take extra steps to confirm your ID before issuing new credit.
- Put a lock on your credit report file by freezing your credit report. A credit report freeze, which costs about $10 per file, prevents new lenders from accessing your credit report. The catch is that you'll be prevented from opening a new credit account unless you temporarily unfreeze your account.
The bottom line? You have to take as much interest in your credit report information as the bad guys do.
