When it comes to protecting your credit from identity theft you have a variety of options. You can do nothing. You can pay to monitor your credit reports. Or, you can freeze your credit reports. Each has their pros and cons, as more fully described below.
I didn’t include “do nothing” to be funny, even though I like my writing to have some sense of humor. The vast majority of people, in fact, do nothing to protect their identity, which doesn’t necessarily mean they’re at greater risk of being a target. The fact that you have an identity means you’re a target and even the most diligent shredder of personal documents is still just as much of a target as someone who dumps their tax returns in their garbage.
Even people who do nothing enjoy significant protections under the Fair Credit Reporting Act (FCRA), the Fair Credit Billing Act (FCBA) and the Electronic Fund Transfer Act (EFTA). The FCRA mandates that the credit reporting agencies add fraud alerts, provide free credit reports and block information resulting from identity theft. The FCBA is the law that limits your liability for credit card theft to no more than $50. And, the EFTA is the law that limits, somewhat, your liability if your debit or ATM cards are stolen and fraudulently used.
Credit monitoring is a service offered by the credit reporting agencies and a small number of other companies. These services are almost always offered for a fee (either monthly or annual). They are very high margin, which is why they’re the primary service being sold by the credit bureaus and other companies online and via their television advertising.
Credit monitoring is often referred to as being a “reactive” approach to identity theft protection because something bad has to happen to your credit reports before you’re notified. Monitoring doesn’t really prevent the fraud from occurring. It just hopes to notify you soon enough after the fraud has occurred to prevent any real damage.
Monitoring services look for credit report changes or additions that could be indicative of fraud. An addition of a new address, a new account or new inquiries will likely set off monitoring alerts. Most of the alerts are either text message or email based. And, most of the better (and more expensive) credit monitoring services will monitor all three of your credit reports daily.
Credit freezing is a service offered by the credit reporting agencies and other companies that gives consumers the ability to lock out access to their credit reports. According to Scott Mitic, CEO and Founder of TrustedID, a consumer identity theft protection company, “Today any consumer in the United States can freeze their credit reports but there is variance from state to state on what you will pay to do so.”
Most credit experts believe the credit freeze is the best way to protect your credit reports from unauthorized access, primarily because it’s proactive rather than reactive Only lenders with whom you have an existing relationship will have access to your credit reports. Lenders with whom you have no relationship will not be able to access your credit reports unless you have thawed them in advance. “A credit freeze is the Fort Knox of credit protection” according to Mitic. “There simply is no stronger way to protect yourself from the most dangerous forms of identity theft.”
The freezes are available in pretty much every state, thanks to state laws. And, in many states the freezes are free for consumers who have been victims of identity theft. To see if you live in a state that mandates free credit freezes for identity theft victims go here.
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.