Don't Let Crooks Steal Your Identity

How to protect yourself--and your credit rating

Identity theft, the fastest-growing financial crime, has acquired a darker edge lately. One of the first things the FBI discovered about the September 11 hijackers was that as many as a half-dozen were using credit cards and drivers' licenses with identities lifted from stolen or forged passports.

In the weeks since, Americans have also suffered some erosions of privacy protection. While a dozen or so consumer-protection bills in Congress have moved to the back burner, new laws have given financial institutions more snooping rights, a move aimed at spotting transactions that might be funding terrorist activity.

You may not be able to deter the government's newfound interest in your personal business. But if you care at all about the privacy of your financial information--your credit history, your portfolio, your charge-card numbers--you can protect yourself from criminals determined to exploit that information.

The theft can be as simple as someone pilfering your credit-card number and charging merchandise to your account. Or it can be as elaborate as a crook using your name, birth date, and Social Security number to take over your credit-card and bank accounts, or set up new ones.

If your identity has been snatched, you're first likely to learn about it when checks start bouncing or a collection agency begins calling. The damage isn't so much in dollars, since the financial institutions are liable for the unauthorized charges. Rather, the fallout includes a checkered credit history, which could prevent you from getting a mortgage or a job, and the countless phone calls and piles of paperwork you'll need to go through to set the record straight.

Guarding against identity theft is much like locking the door and activating the burglar alarm when you leave your home. By and large, the crime is a low-tech operation, despite well-publicized instances of hackers breaking into a Web site and stealing millions of credit-card numbers. Usually, someone fishes a bank statement or credit-card offer out of your trash, or a dishonest employee peeks at your personnel file.

A good tool for combating the crooks is a paper shredder. Park it someplace convenient, such as under your desk, and shred every piece of data-laden junk mail you get. Destroy records you don't need for tax or warranty purposes: bank statements, credit-card receipts, health-insurance reimbursements. And remember, because a 1988 Supreme Court decision held that trash left at the curb for pickup is in the public domain, you have no legal recourse against dumpster divers.

You can buy a perfectly good shredder for as little as $10, such as Tech Solutions' TS-1600. Perched atop a wastebasket, it cuts paper into quarter-inch strips. For a few more dollars, you can buy a shredder with a built-in wastebasket, or one that shreds paper into finer, fettuccine-size strips. Spend $100 or more, and you can turn your personal data into confetti. Most shredders can handle at least five sheets of paper at a time. If you're afraid someone will try to piece the strips back together, douse them in water before you put them in the recycle bin.

You can't shred what you don't receive, so if mail theft is a problem in your neighborhood, consider installing a lockable mailbox. The least expensive models cost around $150; according to new postal regulations, lockable boxes must now have a 1 3/4-inch deep slot. But a hand can still slip into such a space, so most manufacturers use a baffle arrangement inside that lets mail drop to the bottom of the box yet stymies prying fingers. It's best to take outgoing mail to the post office, especially if it contains checks or important documents, rather than leaving it outside your front door for pickup. The blue, official mail-pickup boxes may be safer, but they, too, have been ransacked occasionally--particularly those in remote locations.

ANNUAL CHECKUP. Beyond guarding against people stealing documents, you should request a report from the three big credit bureaus at least once a year. A report from Equifax (EFX ), Experian, or Trans Union costs about $8.50, and you can order it online or by phone. Colorado, Georgia, Maryland, Massachusetts, New Jersey, and Vermont require the companies to give you an annual copy without charge if you request one, and you can always get a free report if you're a victim of fraud or an unsuccessful applicant for a loan or credit card.

Better yet, sign up for a credit-monitoring service. At $40 a year, CreditWatch from Equifax is a bargain. The company scans your credit report every night and sends you an e-mail alerting you to any activity, such as a new credit card issued in your name or a credit check by a car dealership. The price includes six full credit reports a year.

Experian and Trans Union offer similar but more elaborate services, as do several independent companies, at prices ranging from $70 to $100 a year. If you rely a lot on credit, some of these services can be valuable. Take the credit score, a three-digit number that allows lenders to make an instant decision about your creditworthiness. With the Experian's Credit Manager or Trans Union's Identity Guard, you can play "what if" by plugging in new data to see if your credit score changes: Can you qualify for a new mortgage, for instance, if you pay off your car loan immediately?

Read the fine print before signing up, though. Some credit services, especially those offered on inserts with a credit-card bill, can be expensive. Others monitor credit reports only infrequently, such as once a quarter.

Trans Union's Identity Guard also covers up to $2,500 in expenses, such as phone calls and pay for the time off work it takes to straighten out your affairs should you become a victim of identity theft. You can get similar coverage as a rider to your Chubb (CB ) or Travelers (C ) homeowner's policy, and Travelers sells stand-alone identity-theft insurance starting at $50 a year for $5,000 worth of coverage. Such protection is valuable if you're self-employed, says Beth Givens, director of Privacy Rights Clearinghouse, an advocacy group in San Diego. On average, you'll have to spend 175 hours over 23 months to right your credit records after identity theft, she says.

Finally, you can go a long way toward protecting your identity by giving it a lower profile. You can find out how to remove your name from junk-mail and telemarketing lists by going to the Direct Marketing Assn.'s Web site (table). A single phone call to 888 567-8688 will alert the three credit bureaus that you want to stop receiving pre-approved credit offers. And Privacy Rights Clearinghouse, at privacyrights.org, has a list of opt-out addresses and phone numbers for many bank and credit-card companies.

Whatever you do, be serious about guarding against potential intrusions into your affairs. If you don't value your financial identity, there's a good chance someone else will.

Corrections and Clarifications In "Don't let crooks steal your identity" (BusinessWeek Investor, Nov. 19), the correct price of Equifax' CreditWatch credit-monitoring service should be $49.95 per year.

By Larry Armstrong

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