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When Do ID Theft Services Make Sense?

I'm not a huge fan of credit monitoring services and other products that are supposed to protect your identity. In most cases, I believe they're a waste of money because they don't offer anything that you can't do for yourself for free. But according to a new report by Javelin Strategy & Research, there are a couple of situations when they can make sense.

The main trigger for wanting some extra identification security is if you've been a victim of a data breach, says Robert Vamosi, an analyst with Javelin and the author of the 2010 Annual Identity Protection Services Scorecard. That's because consumers who have their personal information stolen in this way are four times more likely to experience fraud, he says.

Unfortunately, this is a common problem. In 2009, one in four Americans reported being notified that their information was compromised due to a data breach. And more than 11% of those folks did indeed suffer identity fraud with the scam artists stealing an average of $4,543 per victim.

If you've been notified that your personal information was compromised and the company does not offer you free protective services, Vamosi recommends you look for a security product that offers both credit and personal information monitoring. For 2010, his top pick in the "Whole Identity Monitoring" category is IDEssentials from TrustedID.

The second situation where it may make sense to consider paying for this sort of product is if you fear your child's identity has been compromised. I recently wrote about how children are the perfect victims for this type of scam since the crime can go undetected for quite some time since parents don't typically keep an eye out for it. Indeed, 5% of all ID theft complaints in 2008 were for kids under the age of one.

Ironically, the last thing you want to do is pull a credit report on your child. While they are a great tool for adults who are worried about their identity, requesting one for your kid could make him more vulnerable since it will trigger the creation of a credit file.

Instead, you should contact the credit bureaus directly and request a credit header search, which looks for just a name, address and social security number, says Vamosi. And most importantly, it doesn't create a credit file. But some people find dealing with these companies a huge hassle. So if you want to skip the red tape you could sign up for a service that offers this limited information scan for children. Vamosi found 10 products that cover kids, including Identity Force and Identity Protect.

For more ways to protect your identity from this growing threat, check out my previous post.

Stacey Bradford is the author of The Wall Street Journal Financial Guidebook for New Parents.
Identity Theft image courtesy of Flickr, CC 2.0.
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