Identity theft happens when someone steals your personal information, such as your Social Security number, address, phone number or financial account information, and uses it to open up lines of credit in your name. Then the thief can take out a mortgage, buy a car or obtain credit cards to use on a shopping spree.
Credit card fraud happens when someone gains access to an individual's legitimately opened credit card account and uses it to buy items, take out cash advances and create other illegal schemes.
Credit card fraud costs credit card companies millions of dollars per year. But the consumer isn't generally responsible for any of it, as many companies have zero dollar fraud liability guarantees. Identity theft poses a longer-term risk, since basic personal information rarely changes. Once personal information is stolen, it can be used to open up new lines of credit for months and years to come.
Unwinding Identity Theft and Credit Card Fraud
Approximately a quarter of a million Americans file a complaint of identity theft with the Federal Trade Commission every year. Since not everyone who is a victim files a report, experts believe the actual number is higher.
You can unwind the fraudulent activity that led to identity theft, but it may take a tremendous amount of time to clean up your credit history and restore your credit score. Once you've gone through the paperwork, you will need to check back to make sure that nothing new turns up on your credit history.
When it comes to credit card fraud, your involvement will generally end once you report the fraud to your credit card company. You should do that as soon as you discover your credit card number or information has been stolen or that there are charges on a bill that you didn't make.
While the number of identity theft cases has grown over the past five years, the good news is that there are ways you can reduce the chance that your personal information will be stolen. Here are some tips for avoiding identity theft and credit card fraud:
Protect Your Personal Information
Pay attention whenever you are asked to provide your address, phone number, date of birth, Social Security number or account numbers. Consider who is asking for the information and what they are going to do with it.
If you haven't initiated the interaction, be extra careful. Con artists can be extremely persuasive and will say almost anything to get you to divulge your personal information.
Keep in mind if you're placing an Internet, phone or catalog order, merchants may ask you to confirm the three digit code in the signature block on the back of your credit card. Asking for this three-digit code, sometimes referred to as a "CID" (cardmember identification code), is one in a series of steps merchants can take to prevent fraud and verify that the order is being placed by the real cardholder, especially when the actual card is not present. If you know you are dealing with a trusted merchant, you should feel comfortable providing this code.
Shred Everything
If you've always thought about buying a shredder but haven't yet, you should make that purchase today.
Shredding documents is one of the best ways to protect yourself against identity theft and fraud. By shredding all documents that contain any personal information (including your address, telephone numbers and other, more sensitive data), you make it a lot harder for someone to find any sort of useful information to use against you.
Your best bet is a cross-cut shredder, which turns paper into confetti. Clever con artists can take strips from a strip-cut shredder (shredders that slice paper into long, thin strips) and put them back together. But once you've created confetti, it's impossible to put back together.
Use a Secured Mailbox
Thieves will go to great lengths to steal your personal information and may even go as far as your front door. Letting checks or other sensitive information sit in an unlocked mailbox can put you at risk. When sending or receiving information that contains personal or financial information, consider using a secured mailbox or dropping it off in a locked mailbox at the post office.
Have Your Bills Sent to You Electronically
It's easy to throw away items that contain personal information without even thinking about it. But someone looking for this information would have no qualms about digging through a dumpster-or even the garbage can at your home-to find an account number on a discarded bill or correspondence.
Paper bills are a ready target for thieves. By having more of your bills and other sensitive information such as account statements sent to you electronically, you reduce the likelihood that you'll throw something away that contains your personal information.
When you sign up to receive your bills electronically, you may be able to opt into an electronic reminder system. This will let you know when a bill needs to be paid (and will typically thank you when you've made the payment).
Pay Your Bills Electronically
Paying bills electronically will eliminate some of the risk. If you pay your bills with a check through an unsecured mailbox, your personal financial information could be compromised or stolen before it gets to the intended recipient. But if you pay your bills online, you reduce the number of opportunities for your personal information to disappear.
Paying your bills online also saves you time and the cost of buying stamps. Just make sure the Web site is a secure, encrypted environment. To make sure that a Web site is secure, look for a closed lock symbol in the bottom right of the screen, which means the site should be encrypted. Web addresses that begin with "https" also indicate secure sites, and if you click on the lock symbol, it should display the same "https" address.
When it comes to making your credit card payment each month, you can use the card's electronic payment option. You'll get to choose the date on which your payment will be made and how much will be electronically withdrawn from your checking account.
Create Strong Passwords and Keep Them Safe
Passwords can be difficult to remember, especially if you have different passwords for different sites. But it is important to create "strong" passwords and not just use your birth date, your address or another easy password that a con artist can guess.
Strong passwords contain both letters and numbers, making them more difficult for thieves to guess. The strongest passwords include a combination of upper- and lowercase letters. Some security experts suggest putting numbers in the middle of the password instead of at the beginning or end.
Remember: The longer the password, the more secure it will be. When you create a password, make sure it is at least eight characters long.
Finally, select passwords you can remember, but don't use your birthday, your pet's name, family names or your Social Security number.
Protect Your PIN numbers
PINs are becoming as prevalent as passwords and are no longer limited to use at automatic teller machines. Many Web sites now require entering a PIN as an added safeguard.
Keeping your PINs a secret may mean the difference between having savings and having nothing. Don't write PINs down, carry them in your wallet or save them on the computer. Do not e-mail passwords or PINs, and memorize both.
Carry a Light Wallet
Another way to prevent identity theft and credit card fraud is to minimize what you carry in your wallet. Only carry the credit cards you need and don't keep your Social Security card in your wallet.
If you have multiple forms of identification, such as a driver's license, a student ID, a work ID and a passport, do not carry all of them with you all the time. Carry only what you need. Also, it's a good idea to photocopy the entire contents of your wallet (the back and front of each card) so you'll have it in case of theft.
Watch What You Say on Your Cell Phone
Be careful about what you talk about on your cell phone in public. You may think it's no big deal to order a pizza and put it on your credit card over the phone, but an identity thief could be lurking nearby. He or she could take your number and start making online purchases.
The same holds true for other personal information, such as a Social Security number.
Check Your Credit History and Score Regularly
It's a good idea to check your credit history regularly, so you know that everything on it is accurate and legitimate. You can order your credit report from each of the three credit bureaus –Equifax, ExperianSM and TransUnion® – by visiting annualcreditreport.com. Federal law entitles you to one free credit report per year from each of these bureaus. (Some states require the credit bureaus to give you more than one free report per year.)
Another way to protect yourself is to purchase a credit-monitoring service from one of the credit bureaus or credit card issuers, which provides you with access to your credit report and credit score. These services will alert you by phone, text or e-mail when there is a change to your credit history.
Take Action
Remember, you can take action to protect yourself from identity theft by using the tips above. You may think you have better or more important things to do than stay on top of your personal information, but taking the time to protect yourself will save you time and money in the future. And you can go to bed at night feeling safer.
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