Identity theft is a modern problem, a crime facilitated by the use of checking accounts, credit cards, ID numbers and computerized banking systems. The incidence of identity theft has grown exponentially since the 1990s. A Federal Trade Commission survey revealed that 3.7 percent of all Americans became aware that they had been victimized by identity theft in 2005 [source: FTC]. That works out to more than eight million Americans in a single year -- and those are just the people who realized they were ID theft victims.
The effects of identity theft can be devastating as well. Victims may directly lose hundreds or thousands of dollars out of pocket, spend hours rectifying the situation, and suffer from damaged credit scores. Even worse, some people spend years suffering the effects of identity theft without realizing it, losing job offers, being denied loans and other opportunities because someone else is running up bills in their name.
Unfortunately, there's no single, simple way to protect yourself against identity theft. There are many avenues that thieves use to gather your information, and they come up with new methods all the time. To really secure your identity (and your financial future), you need a comprehensive plan and a paranoid mindset when it comes to personal information.
In this article, we'll learn how identity thieves steal or scam their way into your financial life, and outline the best ways to keep it from happening.
What is Identity Theft?
Identity theft is a crime -- specifically, it's a fraud. The criminal uses another person's personal information to either create a fake identity or use the victim's identity in fraudulent ways. Most of the time, the goal of the thief is financial. He may use the victim's Social Security number to apply for a credit card, then spend freely and never have to worry about the bills, because they're linked to the victim. Sometimes, stolen information is used to create fake paperwork for illegal immigrants, allowing them to live and work somewhere even if they are not allowed to do so legally.
The simplest form of ID theft is the theft of a credit card or check book. The thief then uses the card or writes checks on your account to make purchases, hoping the clerk doesn't carefully check the signature or ask to see photo ID. This is the oldest form of ID theft, and it requires a thief to physically steal an item from you.
Other thieves use information to make fraudulent credit card purchases without actually stealing your card. The waiter at a restaurant might jot down your credit card number and your name. Later, he looks up your address, then goes online and makes several purchases on your account. Or the thief might use your information to sign up for cell phone service.
The most nefarious identity thieves can infiltrate the victim's financial life completely. The thief obtains a fake birth certificate, uses the victim's Social Security number to open new credit accounts in the victim's name and even obtains loans and mortgages with the stolen identity. The thief might even use the victim's identity if she is arrested, causing an innocent person to gather a lengthy criminal record.
Up next: the basics of protecting your identity.
Know Your Credit
The first thing you need to do to protect your credit is to be vigilant about it. Look over all bank and credit card statements carefully, and look into any suspicious charges. Track down even small charges you don't remember making, because sometimes a thief will make small purchases at first to see if the account is still active. Be wary if a bill doesn't show up when it ought to - someone might be stealing your mail to read your account numbers.
It's also very important to check your credit score at all three of the major credit rating companies (Equifax, Experian and TransUnion) on a regular basis. Some experts suggest checking them every three months (source: Abagnale). The Federal Trade Commission requires each of those companies to provide you with one free credit report every 12 months.
Looking at your credit report isn't the same as understanding it. The credit rating companies don't intend for that information to be viewed by consumers -- their business is providing credit reports to banks, merchants and employers. The information contained in a report can be a little difficult to comprehend. The first part contains your personal information, like your address, Social Security number and so forth.
The second part shows your credit history. Each credit account you have is known as a trade line, and it might be represented by a string of numbers or a recognizable name. The same account might show up multiple times if you've changed addresses. The account will also be accompanied by an R number that looks like this: "R3." The number basically means the number of months late you usually are in paying that bill. R1 is on time, R2 is occasionally late, and anything higher than that is a black mark on your credit rating (R0 means they don't have enough information about your account yet). The bottom line is, this is the part to pay the most attention to. Make sure there aren't any lines of credit listed that you don't know about.
The last part shows all the times a check has been run against your credit report, either because you applied for a loan or because a merchant or employer initiated the check. Look this part over for any abnormal patterns that might indicate someone other than you has been applying for credit in your name.
In the next section, we'll tell you how to keep your identity safe online.
A Den of Identity Thieves
The Internet is a great place for identity thieves. It offers them avenues of obtaining personal information never thought possible in the days before the Web. Scammers and hackers are always developing new methods of getting the info they need. But the first step in avoiding their traps is simple: Don't give your information away.
Whether you're posting on a message board or blogging on your personal Web site, don't publish your address, phone number or, most importantly, your Social Security number. That might seem obvious, but it doesn't stop there. Identity thieves can make use of all kinds of personal info, such as your mother's maiden name, where you went to school or the name of your pet.
Beware of phishing. Phishing is a scam in which you receive a fake e-mail that appears to come from your bank, a merchant or an auction Web site. For instance, the message will inform you that your bank's Web site has been upgraded, and they need you to update your information, with a link directing to a Web form. There you can fill in your name, account numbers and other vital data. The info is collected by the scam artists and used or sold. Phishing scam e-mails can look so authentic that even savvy Internet users can be fooled. Watch for misspelled words and poor grammar, and for blocks of text that are actually images, which can be used to disguise links.
Use a credit card when you go shopping online. A debit card offers no protection if your account number is stolen and used. Credit card companies limit your liability on fraudulent purchases, and you can dispute false charges. Also, make sure any Web site you use for purchases is secure -- most Web browsers have an icon that lets you know whether or not a site uses encryption to keep your information safe. Never make purchases or check online accounts on a public computer or public wireless network. And stick to shopping on reputable sites.
Next, we'll look at some other identity theft scams to watch out for.
Scams to Watch Out For
Mail is a major vulnerability for identity theft. Bills, account statements and (especially) credit card offers are some of an identity thief's favorite things. Make sure your home mailbox is secure. When you send mail, use secure, opaque envelopes so no one can read account numbers or spot checks just by holding them up to the light. Note any sudden drop in the amount of mail you receive -- a thief may have put in a fraudulent change of address at the post office.
The ATM presents other opportunities for identity thieves. Only use ATMs in secure, well-lit locations, and don't use the machine if someone is standing too close or looking over your shoulder. Be aware of changes to your usual ATM, or signs directing you to another nearby ATM. Scammers have been known to use fake card scanners or even fake ATMs that gather your account information when you swipe your card. Take a look at the machine, too. Identity thieves have been known to install card readers at the card intake slot and cameras over the keypad to record your personal identification number as you type it in.
Home break-ins are a particularly unpleasant source of identity theft. Not only do you have to deal with the break-in itself, but if sensitive financial information was left available for the thief, your misfortune is just beginning. Use a paper shredder to destroy old documents. Keep old bills, tax information and other financial papers locked in a secure place. Treat them as though they're more valuable than cash -- to the thief, they are.
Don't ignore unusual phone calls or mail notices. If you suspect a call or letter is a come-on for a scam, contact the FTC. Don't give them any of your information. If you are contacted by a merchant or collection agency about an unpaid bill that you know you shouldn't be charged for, don't just hang up. It could be your first clue that someone has already stolen your identity. Get all the information about the fraudulent purchase you can, so you can dispute it formally.
We'll talk about what to do if you discover you're a victim of identity theft in the next section.
How to Report Identity Theft
If you find that you've been victimized by an identity thief, the process of dealing with it can seem overwhelming. Take heart: The median identity theft case, as reported by the FTC, results in fraudulent charges of just $500, and the victim usually doesn't have to pay for any of it. The median amount of time spent dealing with the situation was four hours. There have been a few cases where victims were left on the hook for tens of thousands of dollars and spent years trying to repair their credit, but they're exceptional.
Your first step should be to call one of the credit bureaus and put a fraud alert on your credit. The bureau is then required to call the other two primary bureaus. The fraud alert prevents anyone from opening a new credit account of any kind in your name. You'll also get a free copy of your credit report -- check it and stay in contact with the credit bureaus until they correct any fraudulent charges or accounts you find there.
Next, close your accounts. For many people, this is a huge inconvenience, but it is the only sure way to shut down a thief who is charging up debt in your name.
File a complaint with the FTC through their online complaint form at ftccomplaintassistant.gov. Then, file a complaint with your local police department. Keep records of everything that happens pertaining to your case. Keep a copy of every bill, phone record, statement and credit report in a safe place in case anyone needs to see it.
For more information about identity theft and related topics, steal over to the next page.
- Abagnale, Frank W. Stealing Your Life. Broadway Books, 2007.
- Federal Trade Commission. "Defend: Recover from Identity Theft." (April 2, 2009) http://www.ftc.gov/bcp/edu/microsites/idtheft/consumers/defend.html
- Federal Trade Commission. "About Identity Theft." (April 2, 2009) http://www.ftc.gov/bcp/edu/microsites/idtheft/consumers/about-identity-theft.html
- Hammond, Robert. Identity Theft. Career Press, 2003.
- Loberg, Kristin; Son, Steven; Thorpe, Megan; Walsh, James, editors. Identity Theft. Silver Lake Publishing, 2004.
- Stewart, Gail B. Identity Theft. Lucent Books, 2007.
- United States Department of Justice. "Identity Theft and Identity Fraud." (April 2, 2009) http://www.usdoj.gov/criminal/fraud/websites/idtheft.html