There are the conventional ways to protect yourself from credit card fraud, and then there's the nuclear option. Here are the pros and cons of each.
Identity theft is one of those back-of-your-head kind of fears. The idea of someone using your credit card is always lurking there when you enter your card number into a new website, or fill out a form that asks for personal information.
It is a completely justifiable concern. Nearly 18 million Americans were victims of identity theft in 2014, according to an estimate by the U.S. Bureau of Justice Statistics. So if you haven’t experienced your card being fraudulently used, you probably know someone who has.
But what can you do?
There are three main ways that are used to detect and halt identity theft, each with advantages and disadvantages. And then there is the nuclear option: the credit freeze. Is it worth it?
First, let’s review the more conventional options, and their limitations:
The most basic approach is a do-it-yourself credit check that is both free and relatively easy. This includes balancing your checkbook to make sure no one’s running up debit charges without you knowing and checking your credit card bills, line by line, to make sure the charges are legit. Some thieves are in it for the long term, and they will make a series of small charges in the hope they fly under your radar. Go over every line. If something looks unfamiliar, check with your card issuer.
Check your credit report at least once per year to make sure no one has opened any accounts in your name. These steps are really the bare minimum. The downside to this approach is that it doesn’t prevent fraud, it only catches it after the fact. Still, it will help you spot fraud in a timely fashion and do damage control.
Credit monitoring is outsourcing the DIY method, at least parts of it. You pay a company to check in on your credit reports from the three major reporting agencies: TransUnion, Experian and Equifax. Typically you pay a flat monthly fee for the company to send you a report about any suspicious activity that showed up in the previous month.
It can be a useful tool to help you check in on the status of your accounts; if someone opens something in your name, you’ll know within a few weeks and can act accordingly. The biggest drawback is that it doesn’t stop anything from happening. The fraudulent account activity already exists, and some damage has already been done. It also means you pay for something that is really not that difficult to do for yourself. Check out “Should I Pay for Identity Theft Protection and Credit Monitoring?” for more details.
Another way to protect yourself from identity theft is to put a fraud alert on your accounts. This won’t help you if someone already has your information and is using an existing card number. But it should prevent someone from opening a new account with your name.
Fraud alerts — which are free of charge — put a notice on your credit report that a potential creditor should verify your identity before opening a new account in your name. You can provide a phone number when you place the alert, in which case, they will need to call you. If you place a fraud alert with one of the credit agencies, you’re required to notify the other two.