I recently received an email from a concerned client who had just found out there was $18,000 in unauthorized transactions on his credit card. His credit score had dropped 43 points already and he was worried that he was a victim of identity theft. Here is some of the advice I gave him.
The fact his credit card was stolen doesn’t necessarily indicate that his identity had been stolen. It simply means that card was compromised. With VISA/MASTERCARD you have zero liability. They issue you a new card, remove the charges and you go on your merry way. The same protections exist on a debit card when you use it like a credit card, not when you use your PIN code. So it is always better to sign when using a credit or debit card.
The real danger in identity fraud is where criminals open new lines of credit without your knowledge and then run them up. If this happens you are proving that you didn’t even open the accounts. You often have collections agencies after you and it can become a real mess. I have seen estimates that the typical identity theft can require upwards of 40-50 hours of work to clear your name. That is a serious amount of time and headaches.
The easiest way to avoid someone hijacking your credit is to “freeze” it. The credit bureaus then cannot release information until you “thaw” your report. I have the link below which shows you state by state the cost and procedures. If you have suffered from identity theft, the fees are often waived.
http://www.consumersunion.org/campaigns/learn_more/003484indiv.html
You can also order a free credit report annually through www.annualcreditreport.com. This will let you know if someone has hijacked your identity. If everything is copasetic, then you could move forward with a credit freeze. Then you can thaw it when you are looking to open new lines of credit.
I will warn you that the freeze can have unintended side effects. It prevents companies which you do not already have a relationship from getting any credit information on you. Potential employers or even changing insurance companies now look at credit. So to apply for new line of credit or a myriad of other things, you will have to thaw it.
