Fraud Alerts and Credit Freezes - Lesson #9

First what is a Fraud Alert?

An alert places a statement on your credit report so that if a fraudster attempts to obtain credit in your name, the creditor, in checking your credit, will encounter a statement that says something to this effect: “I may be a victim of fraud. Call me at my phone number 312-555-7890 before extending credit.” By calling you, the creditor ensures more security.

There are two types of Fraud Alerts

The first and much more common is a 90-day fraud alert. This is for someone who “suspects” they have been an id theft victim, but doesn’t know for sure.

So, I setup a 90-day alert a few weeks ago and here’s how it impacted me. When I went to switch cell phone carriers, instead of the normal online credit check they usually do — yes, your credit score is checked when you apply for a cell phone plan, did you know this? — they tried to call my contact number to verify it was me, so my old cell phone rang and then I was able to verify over the phone that yes it was me trying to order a new plan. My visit to the cell store was longer, but it was a lot safer.

As I was just suspicious that I was a victim of ID theft, just a few weeks earlier, I got the 90-day alert.

To set this up call any of the 3 bureaus, Equifax’s number is 1-800-685-1111 — select option 4. Or go to www.equifax.com. Again, you can call any of the bureaus, I just liked the Equifax automated system.

The second type is a 7-year alert and this for people who MUST prove to the Credit Bureaus that they were victims of ID theft by providing documentation from their credit card companies or other financial institutions. A good idea, if you’ve been a victim.

Finally, there’s something called a Fraud Freeze or Credit Freeze which is available by law or on a volunteer basis by the bureaus in all 50 states and Puerto Rico.

So what is it?

A security freeze means that your credit file cannot be shared with potential creditors or insurance companies; It can help prevent identity theft since most businesses will not open credit accounts without checking a consumer’s credit history first; Once your account is frozen, credit cannot be granted until you unfreeze it - So remember my cell phone story a moment ago? If I had a fraud freeze in place, I would not receive a call and credit would have simply been denied. So, it’s more protective than a Fraud Alert.

ID theft victims can list for free in most states but ‘non-victim’ consumers will pay $10/bureau set it up and $10 each time they need to unfreeze it. In most cases you have to send your requests by certified mail. Click the link under resources to find out more specifics with your state.

If you are past the credit needing age, and not likely to need credit for anything, you may want to do a credit freeze. Okay this isn’t right for most of us, but it might be for your parents, or your aunt or uncle. The elderly are common targets of ID theft as they often have great credit scores and aren’t checking accts as frequently.

Fraud alerts and fraud freezes are not 100 percent fail-safe as some creditors can and will issue credit without pulling a credit report. But they are effective as most financial institutions use credit checking to protect themselves and that, in the end, protects you better.

Okay let’s recap. There are three types of protective measures: the 90-day alert, the 7-year alert, and the Fraud Freeze. The Fraud Alerts are Free and provide an extra layer of security. The 7-yr fraud alert will only be placed with Proof that you were a victim whereas the 90-day alert can be placed by anyone merely suspicious of fraud. The Fraud Freeze is more protective and costs $10 to setup and $10 to unfreeze for each bureau. A good idea if you don’t need a loan, credit card or new cell phone plan in the near future.

ID Theft Prevention and Basics - Lesson #7

This Lesson Addresses Fraud and Identity Theft

This is a big topic so we are going to split it up and we will cover the “definitions” and ID theft prevention in this lesson and how to “treat” an Identity theft in Lesson 8 and then in Lesson 9, we will address Fraud Freezes and Fraud Alerts and when to use each one.

There are generally 2 terms that are thrown around quite a bit so first we need to clarify…the difference between credit card theft and Identity theft.

I have a really smart, i.e. highly educated friend who thinks these are the same. Wrong! So here’s the difference. Existing Credit Card theft is one type of ID theft. Credit Card theft is when some one uses your card to make purchases. The other two types are New Accounts and Existing non credit card account fraud. These together make up the major categories of ID theft. One major difference, your credit card has a nice little law protecting it, so that you are only liable for $50 per card. But you have to dispute the charges within 60 days to get this protection.

So let’s start with Prevention

What’s the best way to protect yourself? Here’s our list of the best preventative tips.

Remember this Phrase: Protect, Detect, Resolve, Block

Okay, first, protect your personal information. Don’t give out your SSN or other personal information unless you know it’s a trusted source, and keep a list of account numbers in a safe place.
Next, manage your mail. Here’s the pattern we use at my house. I pick up the mail and walk to the recycle bin, I dump all the catalogs and non-personal junk and then walk to the shredder to put in my credit card/loan offers that keep coming. Yes, you need to shred these. Then I put the rest on my desk. Having a system will avoid large piles to sort through each month.

If you’re not already online, Get online. Online consumers check their accounts more frequently which mean less damage is done should a fraud occur. Note that in a Javelin study, the average was $551 in losses when detected online vs. average $4,543 when detected from paper statements. A Harris Interactive study says that 50% of all households pay some bills online. So, if you are online, your risk is a great loss would appear to be lessened.

We realize that the other 50% of you out there are saying ” I don’t shop online” or “I don’t do anything online” or that “the Internet is evil”. Saying you are going to stay offline is like saying I refuse to use an ATM or I refuse to use a cordless phone”, it’s simply not feasible. Look… we are not asking you to get a computer and internet access if you don’t have it. You can do this from your library as long as you are careful to log in and out of your accounts. Besides, online ID theft is just about 10% of all ID theft. The real common ways ID theft happens are stolen wallets, checkbooks and credit cards.

Next tip: Check your accounts regularly. One study suggests 40% of us don’t review our statements on a regular basis, or even at all. ID thieves are counting on this!! You should review your accounts online once a week. Or check into the email alert service many banks have so you can be alerted for large balance changes. Wamu’s credit card has numerous setting options for alerts, where you can set to be notified various ways. Here we are setting an alert to be notified when my balance goes over $500.

A new service called Mint.com sends out alerts for you if your bank doesn’t offer this service. Mint is neat as it consolidates all your cards in one place.

Start using a credit-monitoring product or at a minimum check your credit free once a year at annualcreditreport.com. The annualcreditreport.com site is just okay as you only get your free report 1 time per year. The monitoring products are the “”Set it and Forget it” approach. Since we realize that checking your accounts once/week is simply not ideal for most people on the go — we like monitoring products as a simple alternative.

The good news, it that most of the monitoring products do ID theft protection - even if they are not marketed this way. Score Watch, while not marketed as an ID theft product, provides great monitoring. By the way, you may see ads for $1MM in id theft insurance included with some products. That’s no different than $20-25k in insurance as they only pay recovery fees i.e. it only covers your loss and legal and professional fees. And as you saw above, with an average fraud loss of $4543, much of this covered through your credit card’s $50 liability, $20K-$25K of insurance is just fine.

If you are past the stage of needing credit - for example, you own your house, own your car and don’t need any new cards, and not likely to need credit for anything– you may want to do a credit freeze. [We discuss Freezes in Lesson 9]. Okay this isn’t right for most of us, but what about your parents, or your aunt or uncle. The elderly are common targets of ID theft as they often have great credit scores and aren’t checking accounts as frequently. Yet, they often don’t ever need new credit.

We know this might seem like a lot to digest, but remember you have options, you can do much of the legwork yourself by disciplining yourself to check accounts regularly or you can pay a monitoring service to do it for you

In the next lesson, we’ll discuss how to deal with an ID theft if you get victimized.