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The Short Answer

How to Safeguard Against Identity Theft

Weigh the costs of these services against the benefits.

Question: I've been hearing a lot about cases of identity theft. How can I protect myself? Is this something I can do on my own, or is it better to use a paid service of some kind?

Answer: In last week's Short Answer column, I shared some tips on how to keep your credit score as high as possible. I briefly touched on the importance of scouring your credit card statements for signs of identity theft, which, if unreported and unchecked, can damage your credit rating in a hurry. Unfortunately, cases of credit card fraud and, more broadly, identity theft, are on the rise: Between 2001 and 2010, recorded complaints of identity theft nearly tripled, from 86,250 to 250,854.

Sizing Up the Options
Consumers have a few options to ward against identity theft, ranging from free fraud alerts to paid credit-monitoring and identity-protection services. Choosing the right level of protection for you depends on your risk of identity theft and how much time you have.

Fraud Alerts
To help mitigate rampant identity theft, Congress passed the Fair and Accurate Credit Transaction Act of 2003 (FACT Act). In addition to allowing consumers to request and obtain free annual credit reports from each of the three nationwide consumer credit reporting companies (through AnnualCreditReport.com), the act also allows individuals to place free fraud alerts on their files if they have a good-faith suspicion that they have or are about to become a victim of fraud or identity theft.

To place a fraud alert, just call one of the three major credit bureaus. Once a fraud alert is placed in your credit file, a financial institution is then required to take reasonable measures to ensure your protection before approving any credit in your name, usually by asking you a series of questions about your other financial dealings (who your mortgage lender is, recent transactions, and so forth). Fraud alerts expire after 90 days, but can be renewed if you have continued reason to believe you're in danger of identity theft. Moreover, if you can show evidence that you were an identity theft victim (a valid police report showing that you have been a victim of identity theft, for example), you can request an extended fraud alert that stays in your file for a seven-year period.