How Does Identity Theft Protection Actually Work?
The idea of someone stealing your identity is scary. Losing control of your identity can not only create a lot of headaches for you, it can also wreak havoc on your finances, your credit, and even your career.
Identity theft is a real problem, as illustrated by these facts:
- 14.4 million consumers became victims of identity fraud in 2019 (IdentityForce)
- Identity theft cases resulted in losses of up to $502.5 billion in 2019 and $712.4 billion in 2020 (Insurance Information Institute)
- Reported cases of identity theft more than doubled in 2020 from the previous year (AARP)
To address this growing threat and problem, a number of companies have stepped in to build and offer identity theft protection tools that are intended to help people.
Identity theft protection tools are increasingly popular among a generation of people who are increasingly aware of data security and cybersecurity threats...but what do these tools actually do?
How do identity theft protection tools work? Can they actually protect you from criminals trying to steal your identity? Are they really worth the money?
In this article, we’ll address these questions and more. We’ll also help you understand what identity theft is, how it happens, who is most at risk, and what you can do if you find out that your identity has been stolen.
What is Identity Theft?
Let’s start with the basics: what is identity theft and how does it occur?
According to the Department of Justice,“identity theft and identity fraud are terms used to refer to all types of crime in which someone wrongfully obtains and uses another person's personal data in some way that involves fraud or deception, typically for economic gain.”
There are many different types of identity theft, in fact,the FTC has catalogued over 30 different types in a 2019 report.
The most common type of identity theft is financial identity theft, when a criminal uses your personal information to access an existing bank or credit account or open a new account.
Other types of identity theft include:
- Tax identity theft: when a criminal steals your personal information for the purpose of getting a tax refund.
- Employment identity theft: when a criminal uses your personal information for the purpose of passing a background check.
- Senior identity theft: when a criminal targets vulnerable senior citizens to get access to personal information and money.
Identity theft happens when criminals get access to your private, personal information. Personal information includes things like your name, social security number, address, birth date, account numbers, and passwords.
There are many ways criminals can get access to this type of information. Here are some of the most common ways:
- Someone steals your wallet and gains access to your driver’s license and credit cards.
- Someone steals your mail, hoping to get letters from your bank, credit card company, or the IRS.
- Someone digs through your trash to receive letters or mail you intended to throw away.
- Someone skims your credit card information from an ATM using a skimming device.
- Someone gains access to your computer while you’re using unsecured, public WIFI at a coffee shop.
- Someone gets access to your information through a phishing scam that occurs over SMS, email, the internet, or a phone call.
Once your personal information has been compromised, a criminal will use it themselves or sell it to another criminal for the purpose of making money.
What Do Identity Theft Protection Companies Do?
Today there are a handful of companies that offer what is commonly known as identity theft protection services. LifeLock, Experian, IDShield, and IdentityForce are all examples of companies that offer similar services around identity theft protection.
Paying for identity theft protection has become more popular in recent years, but before you decide whether or not to become a member or subscriber yourself, it’s worth asking the question:
What do identity theft protection companies actually do for their customers?
Most identity theft protection services offer some combination of the following:
- Identity monitoring:they alert you when your information has been shared on the dark web as a result of a data breach.
- Credit monitoring:they alert you when a new account has been opened in your name.
- Public record monitoring:they alert you when something new has been attached to your name by a court.
- Social security number monitoring: they alert you if they believe your social security number has been compromised or sold on the dark web.
- Identity theft insurance: they offer some amount of reimbursement to cover losses you experience as a result of identity theft.
As you can see, most identity theft protection services focus on monitoring for instances of identity theft.
But what about identity theft prevention?
What Don’t Identity Theft Protection Companies Do?
Despite what they might try to make you believe, no company can offer 100% protection when it comes to identity theft. There are just too many ways that your personal information can be stolen and used by criminals.
For that reason, identity theft protection services focus almost entirely on monitoring and alerting you when they believe your identity may have been stolen or your personal information compromised.
For identity theft protection companies, the value in providing these alerts to customers is to help them become aware of and address issues as early as possible and before any more damage is done.
Do You Actually Need to Pay For Identity Theft Protection?
The short answer is no, you don’t need to pay for identity theft protection services.
Here are a few reasons why:
Reason #1: You can monitor your accounts and credit manually on your own. The companies offering these services have the same access to your information that you have. You can monitor your credit reports, bank accounts, and email accounts on your own, it just takes more time.
Reason #2: You already get fraud protection from the banks you use. Under the Fair Credit Billing Act (FCBA), you are only liable for up to $50 for unauthorized use of your credit card, assuming you report the fraud within a few days. There are similar protections offered for debit cards.
Reason #3: The services you pay for can’t actually prevent identity theft. They can help teach you how to keep your personal data more secure and help make you aware of identity theft early on, but they can’t stop your personal data from being stolen by a criminal.
Reason #4: Identity theft protection services may give you a false sense of security. Although these services can be helpful, they can also give you the false belief that you are no longer at risk for identity theft after signing up. The truth is, identity theft can still happen and it’s up to you to actively work to keep your information safe and secure.
Whether you choose to become a member or subscriber of an identity theft protection service is completely up to you.
If you do not plan on monitoring your identity or taking intentional steps to keep your personal information secure, it may be helpful to use one of these services.
But what if you want to take a more active and proactive role in protecting your identity?
Simple Ways to Proactively Monitor and Protect Your Identity
Monitoring and protecting your personal information and your identity is important. Here are specific steps you can take to make it harder for criminals to access and use your information:
1. Use strong passwords and change them regularly with a password manager.
2. Check your credit reports regularly and look for discrepancies.
3. Check your bank statements regularly and look for payments you don’t recognize.
4. Don’t give your personal information out to strangers.
5. Don’t click on links you don’t recognize, even if they look like they come from a reputable source.
6. Don’t fall for online offers that seem too good to be true.
7. Keep your devices locked and secure.
8. Avoid using unsecure, open WIFi networks.
9. Watch for mail from banks or credit card companies you don’t recognize.
10. Shred personal information instead of just throwing it away or recycling it whole.
11. Keep your computer and phone up to date with the latest software.
While these recommendations will help make it more difficult for criminals to steal your information, they won’t eliminate the risk entirely.
So what steps should you take if someone does get access to your information and steals your identity?
Steps to Take if Your Identity is Stolen
If you believe that your identity has been stolen, take the following steps:
Step 1: Report the incident to the FTC.
Step 2: Change your passwords immediately.
Step 3: Alert your banks or credit card companies and close or freeze your accounts.
Step 4: Alert the credit bureaus.
Step 5: Consult with an attorney to help you navigate the process of identity recovery and dispute charges.
Recovering your identity can be a stressful, exhausting process, but it can be done. The best thing to do is make a plan and act as quickly as possible.
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