CHAPTER 4
Avoiding a Modern-Day Identity Crisis
If you think you won’t be the victim of identity theft because you’re just an average person with an unimpressive bank account, think again. You aren’t immune, even if you use a shredder for your monthly bills, are pretty careful with your credit cards, and avoid online banking. Even if your bank asks for an ID every time you try to cash a check—and you’ve been going there for years, waiting for the teller to recognize you—you’re not protected from identity theft.
Anyone who thinks that identity theft can’t happen to them is “alarmingly disconnected” from reality, as John Sileo, author of Stolen Lives: Identity Theft Prevention Made Simple (DaVinci Publishing, 2005)—one of the best books on this subject—likes to say. Every time I give a speech I ask the audience if anyone’s ever had their identity stolen, and invariably some hands go in the air. Identity theft can happen to anyone, at any time, and it could take days, weeks, or even years to discover it—and longer to clean it up. It can create a huge mess, and it can happen to you.
Identity theft occurs when someone acquires a piece of your personal information and uses it to commit fraud. In its extreme form, a thief with your Social Security number could be out there living an alternative version of your life: opening bank accounts; stocking up on houses, jewelry, and cars; traveling around the world; dealing drugs or carrying out other crimes; and telling everyone he or she is you. More typical is the version of ID theft that occurs when someone gets hold of your credit card number and then goes on a one-day shopping spree until you (or your card issuer) catch the problem and cancel the card. In even its mildest version, identity theft can really hurt, and I’m not just talking about the psychological pain of being a victim: It can trash your credit report, and that can take a long, long time to fix.
Identity theft is burgeoning. In 2008, the number of instances of identity fraud rose 22 percent to near-record levels, with one of every 23 adult Americans being victimized, according to Javelin Strategy & Research, a financial services consulting firm. Some $48 billion was lost. You may think that identity theft is a growing phenomenon because of the growth of Internet shopping and banking—that all of those bits of data flying around the Web lead inevitably to more theft. And there are certainly high-tech frauds to worry about. But the most common form of ID theft still occurs by old-fashioned methods: A pickpocket grabs your wallet; a dishonest restaurant employee pulls your credit card number off the slip in the trash.
If you want to know everything about how identity theft occurs, I recommend that you go further than this chapter—buy John Sileo’s book. His motto is “Think like a spy” (his informative web site is at
www.thinklikeaspy.com), and he offers checklists and action plans for people who want to do everything in their power to protect their financial and personal information.
He also tells some strange and distressing stories about ID theft victims. In California, apparently, it’s not unusual for women to use other women’s names and credit cards when getting breast augmentation, tummy tucks, and other plastic surgeries. Victims have not only lost their credit cards; they’ve been subject to follow-up phone calls from surgeons about how their breasts are doing and had to worry about proving that their body parts were their own or making sure their medical records were accurate.
So yes, ID theft can get pretty bizarre. But there are ways for you to protect yourself from identity theft. All of those methods I mentioned at the beginning of this chapter—shredding bills, being careful about your credit cards—help. But they aren’t enough. There are other steps you can and should take to make sure your financial identity and the dollars in your bank account remain in your control.
Learn the Basics
If you know how identity thieves operate, you’ll have a better chance of cutting them off at the pass. Here are the many ways that the Federal Trade Commission says identity thieves can get hold of your information.
• Stealing. They steal credit card bills and convenience checks out of mailboxes. They steal wallets and purses wherever they find them.
• Diverting. They file a change of address form for you with the post office; your bills and statements get diverted to their address.
• Dumpster diving. They pull credit card slips out of restaurant trash bins and bank statements out of the recycle bin in the front of your house.
• Shoulder surfing. They stand next to you at the ATM or checkout machine and read your personal identification number (PIN) as you key it in.
• Pretending to be trustworthy. Sadly, the most costly identity thefts are usually carried out by people that the victims know. A dishonest “friend,” relative, neighbor, or household employee can just copy the important numbers they find sitting out on your desk.
Then there are the new-tech ways to steal identities.
• Skimming. They put a special storage device on a store’s card processing equipment or an ATM and collect all the numbers that go through it.
• Phishing. They pretend to be your bank (or eBay) sending you an important account update via e-mail. You click on the link to verify your information, and instead you’ll have clicked through to a fake site that looks like your bank’s site but exists to grab personal financial information.
• Fake networking. They set up Wi-Fi networks in public spots, like parks or airports, to collect information about you when you go on what you think is a safe network to check your bank balance.
• Hacking. They put spyware on your computer that sends them messages with your passwords and account numbers.
Then What?
Once an unscrupulous person has your Social Security number or your bank account number and PIN, the thief can really go to town. Here are some of the kinds of things an identity thief can (and will) do with that information.
• Open new credit card accounts in your name, with a different address. You’ll never see the bills, but the delinquencies will show up on your credit report.
• Start new utility services for phone, wireless, cable TV, electricity, or gas. Again, you won’t see the bills, but the bad debts will follow you around.
• Create counterfeit checks using your name and account number. By the time you get your monthly statement, your money may be gone and your mortgage check will have bounced.
• Claim government benefits using your Social Security number; get a driver’s license or other ID with the thief’s picture and your name.
• File a fraudulent tax return from “you” and get a refund.
• Live as you. Get a job, rent a house, have surgery, drive drunk, or get arrested under your name.
Prevention Is Easier Than Cleaning Up Later
It is possible to recover from even the worst identity theft, but it’s a huge nightmare that you would be better off not dealing with. Make it harder for thieves to pick on you by protecting your financial information. Here are some good habits to adopt.
• Carry around fewer bits of info in your wallet. Leave your Social Security card at home (or, even better, in your safe-deposit box). Don’t go shopping with all of your credit cards.
• Keep your checks clean. Don’t print your Social Security number or driver’s license number on your checks. In fact, you are better off not keeping your checkbook in your purse at all.
• Try to get your Social Security number removed from IDs like your health insurance card or your driver’s license. Some states and insurance companies will allow you to use an alternative ID number.
• Only use credit cards that carry your photo ID on them.
• Copy your wallet. This won’t prevent identity theft, but it will make recovery a lot easier. Go to your local copy shop, empty your wallet onto one of the machines, and make a copy of every card. Turn them over and copy the backs. Keep a copy filed safely away at home or in your safe-deposit box.
• Buy a shredder and use it for any bills, checks, statements, or other documents that have your personal information on them, including preapproved credit card offers.
• Protect your phone and your computer with a password.
• Use a locking file cabinet and a safe-deposit box for important papers.
• Keep up-to-date antivirus and antispyware on your computer.
• Use different passwords for different Internet sites. Change the passwords on your bank and brokerage sites regularly. Keep a record of your passwords on a piece of paper, but keep that piece of paper locked up in your file cabinet or safe-deposit box.
• Receive and pay bills online whenever possible—done correctly, this is more secure than your mailbox!
• Monitor your credit reports on a regular basis, as I described in Chapter 3.
Opt Out
The fewer mailing lists you are on, the less your information is circulated, sold, and resold. And by opting out of most offers, you’ll also cut down on the nuisance of junk mail, spam, and dinner-hour phone calls. Here is how to opt out of most unwanted offers.
• Tell your bank to discontinue sending convenience checks or other card promotions about your account.
• Stop prescreened credit offers by calling 1-888-5OPTOUT (1-888-567- 8688) or by registering at
www.optoutprescreen.com.
• Stop annoying telemarketing calls by putting your name on the national Do Not Call Registry at
www.donotcall.gov. You can also contact your state consumer affairs office to see if there is an additional Do Not Call list there.
• Reduce junk mail, ironically, by registering at the web site of the industry trade group, the Direct Marketing Association (
www.dmaconsumers.org).
• Remove your name and other identifying information from online directories, such as Google’s reverse phone directory, as you find it. This will make it harder for your high school friends to find you, but will also keep you off a number of marketing lists.
• Opt out on a case-by-case basis. Just about every institution or business you deal with will send you some sort of privacy statement, notifying you that your information will be shared with partner businesses. They usually include procedures for opting out of that list sharing.
• Just say no to special offers. Often, when you register on web sites or buy items online, you’ll find a (usually prechecked) box that says, “Please tell me about special discounts and offers that are great for me!” or some such. Uncheck the box before you finish the transaction.
About Fraud Alerts and Credit Freezes
The best way to prevent someone else from using your good name to apply for credit is to control your credit reports. There are two ways to do that: You can flag your credit files with fraud alerts, or you can freeze your credit files altogether.
I’ll explain all about these techniques here, but first I’ll let you in on one secret: The credit reporting agencies don’t like fraud alerts and freezes. That’s because they make their money selling your files to would-be creditors. The harder it is for them to hand out those files, the less money they can make selling them. The credit reporting bureaus have made it easier for consumers to place fraud alerts and freezes on their accounts only because they were forced into that position through state laws, lawsuits, and the threat of federal legislation.
Consumer groups, by contrast, love these tactics. Consumer Action, a national advocacy organization that focuses on credit issues, recommends that consumers who aren’t expecting to apply for any new credit freeze their files.
The credit reporting agencies don’t like you to know this, but you can place a fraud alert in your credit files, even if you have no specific reason to suspect that you’ve been a victim. To place a fraud alert in your credit files, you must notify one of these three agencies:
Whichever agency you notify will notify the other two, and all three will flag your credit reports for 90 days. That means that whenever potential creditors request your files, they will be notified that you may be a victim of identity theft. The creditors will most likely respond to that notification by contacting you directly before they approve any credit applications.
The three agencies look at these fraud alerts as a way to manage accounts in which there is reason to believe information may have been compromised. But consumer groups—and I agree with them—see them as a permanent way to keep tighter controls on your credit report. If you want to keep alerts on your credit files all the time, you will have to renew your request every three months. (If you’ve actually been a victim of identity theft, your account can be flagged for seven years. Read more about how to recover from identity theft in Chapter 10.)
Actually freezing your credit file is a whole other level of control. It means nobody—not even creditors you want to borrow from—will be able to access your credit report. You will have to let all three agencies know you want your files frozen and you may have to pay $10 to each one to accomplish that, depending on what state you live in. Once your account is frozen, you can “defrost” it—lift the freeze—by notifying the agency that you want to do that. If you rarely apply for new credit and don’t expect to do that anytime soon, then you should consider freezing your files. My identity theft mentor, John Sileo, thinks the freezing tactic is a good idea. “Had I frozen my credit neither of my cases of identity theft would have happened,” he said, noting that he was ripped off once by a stranger who bought a house in his name, and once by a business partner who committed fraud in his name.
If you do freeze your account, lift the freeze four to six months before you expect to borrow money, so that you have time to make sure your records are in order before you apply for that car loan, credit card, or mortgage.
And now I will tell you what I do, personally, with all of this. I pay a company called Lifelock (
www.lifelock.com/moneyanswers, 80-LIFELOCK, mention promo code Moneyanswers to qualify for a discount) to guard my credit report for me. For $110 a year, Lifelock keeps renewing fraud alerts on my credit files, so I don’t have to remember to keep doing it myself. The company also does things like monitor address databases and hacker web sites to make sure my address doesn’t get changed (a sign that someone is trying to hijack my credit card statements) and my personal data doesn’t show up. Other companies that provide similar services are Identity Guard (
www.identityguard.com) and TrustedID (
www.trustedid.com).
Of course, I could do much of this myself, but I don’t want to take the time. Some critics have suggested that the actual risk of being badly victimized by new account fraud actually is pretty low, much lower than Lifelock and these other companies would have you believe. Javelin Strategy & Research has found its incidence declining to around 1 percent of the population. So why do I keep signing up with Lifelock? I think it is a good idea because the cost of doing so is small but the potential damage of being hit by ID theft is so enormous that a person should do everything possible to prevent getting hit.
You May Already Be a Victim
How will you even know if your identity has been stolen? You might get strange phone calls from bill collectors for debts you don’t even have. Or you’ll be unable to get a new credit card or car loan, even though you are pretty sure you should qualify. Perhaps you don’t get your credit card bill on time. Or you find unauthorized charges on your credit card or bank withdrawals you didn’t make. Your credit card issuer might call you to ask about unusual behavior on the card.
If you suspect you have been victimized by identity theft, the first step is to notify all three credit bureaus, your bank, and all of your creditors, and let them know you suspect something is amiss. Get copies of your statements and your files, so you can see if there are other problems.
The Federal Trade Commission (FTC) has an excellent web site with information and help for people who have become ID theft victims at
www.ftc.gov/bcp/edu/microsites/idtheft/. There you can file a complaint with the FTC, and also find the FTC’s ID Theft Affidavit form. You should fill that out and use it to demonstrate to creditors, credit reporting agencies, and others that you have been victimized in this way. You can also use it to close any accounts that have been issued in your name. You should also notify the police. While it’s unlikely they’ll put a lot of manpower into finding the person who used your good name, having the police report will help you to straighten out your accounts and reports. It will help you get your credit reports cleansed of problematic accounts opened by others.
Many identity thefts are resolved quickly, but some are not. Even in extreme cases, though, there is life after identity loss and consumers are usually able to straighten out their finances. Prevent ID theft from happening in the first place, but know that you can clean it up if the worst happens anyway.