Fraud Alerts, Monitoring, and Freezes (oh my!)
Several people have asked me to explain the differences in credit monitoring, fraud alerts, and credit freezes, and which is best. So I am spending some time in this blog entry going over these deterrents to financial identity theft. Remember, though, that financial identity theft is only one type of ID theft, representing about 25% of the reported crimes! The other types (driver's license, social security number, medical, and criminal/character) are growing in frequency and are much harder to detect and correct on your own. Beware: watching only your financial situation can give you a false sense of security.
Credit Monitoring
Credit monitoring in its strictest definition is simply monitoring your credit regularly at one or more of the three major credit bureaus Experian, Equifax, and Trans Union. On your own, you are limited to requesting credit reports from these bureaus. You are entitled to one free report from each of the bureaus annually (which you can request through annualcreditreport.com), but you can request them as often as you wish for a fee. If you have a legitimate (and reported) theft, you can get them free more often.
In monitoring your credit, you want to look for suspicious activity, such as open accounts that you didn't know about, incorrect address information, inquiries into your credit history, or notations that you don't agree with. If there is suspicious activity or incorrect information, you want to investigate these as soon as possible and get them corrected. It can be a time-consuming process, and some creditors are slow to respond. Incorrect information can affect your credit score, and unknown open accounts can be an indicator of identity theft.
Several companies offer to monitor your credit for a fee and report suspicious activity to you. Some are sponsored by the credit bureaus themselves. The Identity Theft Shield from Pre-Paid Legal Services, which I market, is one of the independent monitoring companies. The base service for $12.95/mo covers both spouses and provides monitoring of your accounts listed in Experian; there is a $3/mo option to monitor all three bureaus. PPL chose Experian because it also monitors address changes coming through the US Post Office (another indicator of possible identity theft).
Although there is an overlap in information reported to all three bureaus, some creditors only use one, so it is possible that the information will vary slightly between bureaus. If you purchase a single bureau monitoring service, I would suggest that you request a credit report from the other two bureaus annually.
Credit monitoring alone does nothing to prevent financial identity theft; it merely lets you know what has been done. I have heard it said that it just lets you know that your nightmare has begun. Credit monitoring also does not catch all financial identity theft. Theft and misuse of an existing credit card, for example, may not appear as suspicious activity until long after the crime, and unscrupulous creditors may not report all activity to the bureaus.
Fraud Alerts
A fraud alert in the technical sense is a notification to the credit bureau that a possible identity theft has been reported. It is a red flag to potential creditors that the account is suspect. If you contact a credit bureau and request a fraud alert, it is automatically reported to the other two bureaus. When a possible creditor requests a credit report on you, the bureau will indicate that a fraud alert has been placed on the account. Usually, you have given a phone number to the bureau, who will share this number with the creditor. The creditor may call that number to have you verify your identity and desire to open credit.
A fraud alert is theoretically useful in deterring criminals from opening accounts in your name, because the creditor will call you before opening the account. Of course, there is no requirement that the creditor call the bureaus, nor is there a requirement that the creditor calls you to verify the request to open an account, but most legitimate creditors will do so. And like credit monitoring, a misuse of an existing account will not be noticed.
You can establish a fraud alert yourself by calling one of the bureaus. Unless you have a true identity theft, in which you have filed a police report, the fraud alert is good for only 90 days. Then you must call again to renew the fraud alert. LifeLock's main service is that they will renew the fraud alerts for you. To do that, you give them a limited power of attorney when you sign up for the service. If you have had a true identity theft, the fraud alert is good for a number of years.
There are some legal debates going on right now, with some positions stating that constantly renewing fraud alerts is akin to crying "wolf", that the creditors may become desensitize to the fraud alerts. Other positions state that a fraud alert, by its definition of alerting to possible fraud, makes the person's financial situation suspicious, and complicates the person's legitimate need for credit.
Credit Freezes
Perhaps the most effective single defense against financial identity theft is the credit freeze, which prevents the credit bureaus from giving any kind of credit information to inquirers. A credit freeze generally costs about $10-$15 to initiate and remove, unless there has been a reported crime. The cost, endurance, and terms of a credit freeze vary state to state, so I'd suggest you do an internet search for "credit freeze" with your state included in the search parameter. In Kentucky, it costs $10 per bureau to initiate a freeze, and another $10 per bureau to remove it if you want it lifted before the automatic seven years. The requests must be made in writing by certified letter, and it takes ten business days to go into effect.
Summary
As you can see, each of these methods has its advantages and disadvantages, and none gives total protection by itself. Overall, I favor the credit monitoring, because it generates the least interruption of legitimate financial transactions and gives you the most control, but because it is "after the fact", you must pay attention to any alerts you are sent by the monitoring service.
In addition, regardless of any service you might purchase, it is of utmost importance that you involve yourself in your financial identity health. Watch your credit card and bank statements for suspicious activity on existing accounts - and make sure they are coming on a timely basis. Contact the financial entity immediately if you see an error; the quicker you contact them, the lower will be any liability you might incur. There is no such thing as zero liability legally. More and more financial entities are invoking something called "Regulation E", which states that you must contact the entity within a reasonable time frame (typically 60 days), or you could be held liable for the entire financial loss.
Credit monitoring, fraud alerts and credit freezes are effective tools in the prevention and detection of financial identity theft. But don't just consider identity theft as a financial concern. Watch for unusual activity in other areas -- strange letters from the department of motor vehicles, for example, or unexplainable items on a medical EOB report. These could be indications that your identity has been compromised in other areas besides financial. If you sign up for a service to protect your identity, look hard at the guarantee. Make sure you know what is and what isn't covered. As a Certified Identity Theft Risk Management Specialist, I believe that you really need a three-legged stool, one that offers credit monitoring, true, full restoration, and legal assistance. Contact me if I can help you find the right provider for your needs.
Credit Monitoring
Credit monitoring in its strictest definition is simply monitoring your credit regularly at one or more of the three major credit bureaus Experian, Equifax, and Trans Union. On your own, you are limited to requesting credit reports from these bureaus. You are entitled to one free report from each of the bureaus annually (which you can request through annualcreditreport.com), but you can request them as often as you wish for a fee. If you have a legitimate (and reported) theft, you can get them free more often.
In monitoring your credit, you want to look for suspicious activity, such as open accounts that you didn't know about, incorrect address information, inquiries into your credit history, or notations that you don't agree with. If there is suspicious activity or incorrect information, you want to investigate these as soon as possible and get them corrected. It can be a time-consuming process, and some creditors are slow to respond. Incorrect information can affect your credit score, and unknown open accounts can be an indicator of identity theft.
Several companies offer to monitor your credit for a fee and report suspicious activity to you. Some are sponsored by the credit bureaus themselves. The Identity Theft Shield from Pre-Paid Legal Services, which I market, is one of the independent monitoring companies. The base service for $12.95/mo covers both spouses and provides monitoring of your accounts listed in Experian; there is a $3/mo option to monitor all three bureaus. PPL chose Experian because it also monitors address changes coming through the US Post Office (another indicator of possible identity theft).
Although there is an overlap in information reported to all three bureaus, some creditors only use one, so it is possible that the information will vary slightly between bureaus. If you purchase a single bureau monitoring service, I would suggest that you request a credit report from the other two bureaus annually.
Credit monitoring alone does nothing to prevent financial identity theft; it merely lets you know what has been done. I have heard it said that it just lets you know that your nightmare has begun. Credit monitoring also does not catch all financial identity theft. Theft and misuse of an existing credit card, for example, may not appear as suspicious activity until long after the crime, and unscrupulous creditors may not report all activity to the bureaus.
Fraud Alerts
A fraud alert in the technical sense is a notification to the credit bureau that a possible identity theft has been reported. It is a red flag to potential creditors that the account is suspect. If you contact a credit bureau and request a fraud alert, it is automatically reported to the other two bureaus. When a possible creditor requests a credit report on you, the bureau will indicate that a fraud alert has been placed on the account. Usually, you have given a phone number to the bureau, who will share this number with the creditor. The creditor may call that number to have you verify your identity and desire to open credit.
A fraud alert is theoretically useful in deterring criminals from opening accounts in your name, because the creditor will call you before opening the account. Of course, there is no requirement that the creditor call the bureaus, nor is there a requirement that the creditor calls you to verify the request to open an account, but most legitimate creditors will do so. And like credit monitoring, a misuse of an existing account will not be noticed.
You can establish a fraud alert yourself by calling one of the bureaus. Unless you have a true identity theft, in which you have filed a police report, the fraud alert is good for only 90 days. Then you must call again to renew the fraud alert. LifeLock's main service is that they will renew the fraud alerts for you. To do that, you give them a limited power of attorney when you sign up for the service. If you have had a true identity theft, the fraud alert is good for a number of years.
There are some legal debates going on right now, with some positions stating that constantly renewing fraud alerts is akin to crying "wolf", that the creditors may become desensitize to the fraud alerts. Other positions state that a fraud alert, by its definition of alerting to possible fraud, makes the person's financial situation suspicious, and complicates the person's legitimate need for credit.
Credit Freezes
Perhaps the most effective single defense against financial identity theft is the credit freeze, which prevents the credit bureaus from giving any kind of credit information to inquirers. A credit freeze generally costs about $10-$15 to initiate and remove, unless there has been a reported crime. The cost, endurance, and terms of a credit freeze vary state to state, so I'd suggest you do an internet search for "credit freeze" with your state included in the search parameter. In Kentucky, it costs $10 per bureau to initiate a freeze, and another $10 per bureau to remove it if you want it lifted before the automatic seven years. The requests must be made in writing by certified letter, and it takes ten business days to go into effect.
Summary
As you can see, each of these methods has its advantages and disadvantages, and none gives total protection by itself. Overall, I favor the credit monitoring, because it generates the least interruption of legitimate financial transactions and gives you the most control, but because it is "after the fact", you must pay attention to any alerts you are sent by the monitoring service.
In addition, regardless of any service you might purchase, it is of utmost importance that you involve yourself in your financial identity health. Watch your credit card and bank statements for suspicious activity on existing accounts - and make sure they are coming on a timely basis. Contact the financial entity immediately if you see an error; the quicker you contact them, the lower will be any liability you might incur. There is no such thing as zero liability legally. More and more financial entities are invoking something called "Regulation E", which states that you must contact the entity within a reasonable time frame (typically 60 days), or you could be held liable for the entire financial loss.
Credit monitoring, fraud alerts and credit freezes are effective tools in the prevention and detection of financial identity theft. But don't just consider identity theft as a financial concern. Watch for unusual activity in other areas -- strange letters from the department of motor vehicles, for example, or unexplainable items on a medical EOB report. These could be indications that your identity has been compromised in other areas besides financial. If you sign up for a service to protect your identity, look hard at the guarantee. Make sure you know what is and what isn't covered. As a Certified Identity Theft Risk Management Specialist, I believe that you really need a three-legged stool, one that offers credit monitoring, true, full restoration, and legal assistance. Contact me if I can help you find the right provider for your needs.
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