3 Ways to Protect Your Credit — and Their Pros and Cons

Identity theft is one of those back-of-your-mind fears that suddenly roars to the forefront at unhappy times — such as when a new data breach makes headlines.

The worry over someone stealing your identity is justifiable. But what can you do?

There are several methods used to detect, deter or prevent identity theft. And then there is the nuclear option: a credit freeze.

Do-it-yourself monitoring

The most basic approach is do-it-yourself credit monitoring, which is free and relatively easy.

The basics entail 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 those charges are legitimate. Some thieves are in it for the long term, and they will make a series of small charges in the hope that they fly under your radar. So, go over every line. If something looks unfamiliar, check with your card issuer.

The DIY method also entails pulling your credit report at least once per year to make sure no one has opened any accounts in your name.

The major credit reporting agencies — Equifax, Experian and TransUnion — are required by law to provide you with one free credit report each year. You can obtain them at AnnualCreditReport.com, but should note that they are only credit reports. If you want free credit score information and credit reporting analysis, you have several options. Find out more by reading “6 Ways to Get Your Official FICO Credit Score for Free.”

The downside to the DIY 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 so you can do damage control.

Credit monitoring

Credit monitoring is outsourcing at least parts of the DIY method. You pay a company to check on your credit reports from the three major credit-reporting agencies. Typically, you pay a flat monthly fee, and the company sends you reports about any suspicious activity that showed up in the previous month.

So, if someone opens something in your name, you’ll know within a few weeks and can act accordingly.

The biggest drawback is that credit monitoring companies don’t prevent fraud from happening. They simply notify you after the fact. Additionally, you’re paying for something you could do yourself.

Fraud alerts

Another way to guard against identity theft is to place a fraud alert with one of the three major credit-reporting agencies.

Fraud alerts — which are free — effectively put a notice on your credit report that a potential creditor should verify your identity before opening a new account in your name. If you place a fraud alert with one of the three major credit-reporting agencies, it is required to notify the other two.

In general, an alert remains in place for at least 90 days, but it can be renewed. One exception is for victims of identity theft who have a police report to prove it. They can place an extended alert that lasts for seven years.

Alerts are good for people who have reason to believe that someone else might have their information, such as people affected by a credit-card data breach.

Fraud alerts won’t help you if someone already has your information and is using an existing card number. But they should prevent someone from opening a new account in your name.

For more information about placing a fraud alert, visit the U.S. Consumer Financial Protection Bureau’s website.

Credit freeze

A credit freeze is the nuclear option in the sense that it is a more powerful weapon against identity thieves. However, it could involve fallout for you.

When you put a credit freeze or security freeze in place on your file at the three major credit-reporting agencies, no one will be permitted access to your credit reports, even if they have your Social Security number. This will stop prospective thieves from opening an account in your name.

The big drawback is that it will also stop you from opening any new accounts in your own name.

For some people, that may not be a problem, though. For example, if you’ve already got your home, with the attendant utility accounts and all the credit cards you need, you might not have reason to open any new accounts. If that’s the case, a freeze could offer an extra layer of protection.

You can also lift a freeze — say if you need financing for a new car — and then restore it after you’ve secured a loan.

The Consumer Financial Protection Bureau’s website has links to each of the three reporting agencies’ information about putting a freeze into effect. The Federal Trade Commission’s site has general information about freezes.

Have you ever placed a freeze on your credit, and do you think it was worthwhile? Tell us about it in comments below or on our Facebook page.

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