How to Stop Identity Theft

Consumers concerned about identity theft have good reason to worry. According Javelin Strategy & Research, in 2012 alone, 12.6 million adults were victims of identity fraud.

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Identity theft can take many forms, but one type of fraud occurs when an unauthorized credit account is opened.

Two major tools -- fraud alerts and security freezes -- can help consumers fight back against such an action, says Tod Burke, a criminal justice professor and associate dean at Radford University in Radford, Va.

Alerts, freezes fight ID theft

You can fight back against identity theft by using fraud alerts and security freezes. If you're worried you may be a victim of credit fraud, contact the three major credit reporting agencies: TransUnion, Experian and Equifax.

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"We're not going to always prevent identity theft, but alerts and freezes can help minimize the chance of it happening," Burke says.

A fraud alert is a notation placed on a person's credit report that requires potential creditors to verify a borrower's identity before any new credit is issued in his or her name.

In comparison, a security freeze, also called a credit freeze, prevents potential creditors from viewing a credit report at all. This means no one -- not even you -- can open a new line of credit in your name unless the freeze is lifted.

Consumers can use one or both tools to help protect their credit, Burke says. Following are descriptions of how these options compare in five different areas.

1. Fees

It costs money to initiate a security freeze with each of the three major credit bureaus, up to a total of about $30, says Mari Frank, author of the book, "The Complete Idiot's Guide to Recovering from Identity Theft."

Frank says the exact cost depends on a borrower's state of residence, whether the borrower is a senior citizen, and whether he or she already is a victim of identity theft.

On the other hand, fraud alerts don't cost anything. In addition, consumers who put an alert on their records are allowed to get a free copy of their credit report with each of the three major credit bureaus, Frank says.

Consumers initiate security freezes by contacting all three credit reporting agencies, TransUnion, Equifax and Experian. But for fraud alerts, once you place a fraud alert on your credit report with any one of the three major credit reporting companies, that company will notify the other two and fraud alerts will also be placed on those files, too. Requests can be made via the agencies' websites, by telephone or by mail.

"I would recommend making any request to the bureaus in writing," Burke says. "It may add a few days to the process to mail it in, but it's a good idea to have written correspondence for your own personal records."

2. Strength of protection

Fraud alerts tell potential lenders to verify a person's identity before issuing new credit. However, there are no specific rules for doing this verification, and many consumer advocates are concerned that potential creditors don't do enough to confirm a borrower, Frank says.

"It's frustrating to have an alert if it has no teeth," she says.

By contrast, security freezes don't allow new creditors to look at a file at all.

"It puts a lock on your credit," Frank says.

While this option offers more protection, Frank admits a freeze can be a hassle for people who plan to legitimately apply for credit, or who need an insurance company, landlord or potential employer to check their credit history.

"A freeze may work best for someone who's not planning on applying for new credit in the near future, she says.

3. Time length

Fraud alerts typically last for 90 days and can be renewed for additional 90-day periods.

"Existing victims of identity theft can have the alert extended to seven years," Frank says.

Meanwhile, a security freeze lasts indefinitely.

4. Ability to be reversed

Permanently "thawing" a security freeze can be an involved process, Burke says. Consumers must contact each of the three bureaus to request an end to the freeze. They must also pay a fee of about $10 and provide a personal identification number, or PIN, that they received when they first initiated the freeze.

"If you forget your PIN, the freeze reversal could be delayed for several days," Burke says.

The process for ending a fraud alert is easier, he says.

"Fraud alerts can be ended by contacting each of the three major credit reporting agencies, and by requesting that they be removed," Burke says.

Consumers can also choose to wait until the alert expires.

5. Effect on the consumer's credit score

Neither a fraud alert nor a credit freeze alone will affect a consumer's credit rating, Frank says.

Incidentally, although new lenders can't access credit files when a security freeze is in place, existing creditors can still view those records and continue to see how well consumers are managing their accounts, she says.

Another option

Some experts say that for the most identity theft protection, consumers should look beyond fraud alerts and credit freezes.

Monitoring plans are offered by independent companies, financial companies and even credit bureaus themselves. Costs vary, but are typically around $10 per month.