What Kind of Credit Protection is Right for You?

Credit protection experts and the federal government urge consumers to be pro-active in preventing identity theft. But the barrage of information about the issue may leave you unsure of how best to protect yourself, and your family, before you become victims.

"Consumers need to educate themselves on the tools available to them when it comes to preventing identity theft," says Todd Davis, chief executive officer of LifeLock, an online proactive identity theft prevention service. "Learning the difference between a fraud alert, credit monitoring and a credit freeze can help consumers better protect themselves and their loved ones."

What is a Fraud Alert?

Fraud alerts allow you to take control of who issues you credit and when. The alert tells any company that uses your credit report, such as a bank or insurance company, they must call you at a phone number you specify before they can issue credit, arrange loans, open accounts, increase credit lines, open new credit cards or otherwise influence your assets.

You place the free alert by contacting just one of the three major credit bureaus and requesting it. The bureaus share this information with each other, and placing the alert can be done over the phone. A fraud alert won''t hinder your ability to make credit purchases.

Fraud alerts expire after 90 days and must be renewed. If you have a police report showing you are the victim of ID theft, you can place a fraud alert for up to seven years. While most merchants welcome the alert system because it reduces their exposure to fraud losses, some companies will not honor the alerts for various reasons. "LifeLock maximizes the power of the fraud alert by automatically renewing it for subscribers and completely guaranteeing that even if one fails, you are protected," says Davis. "About every 70 days, we renew a client''s fraud alerts with all three major credit reporting companies. It''s one less thing anyone needs to worry about."

What is a Credit Freeze?

As of Feb. 1, 2007, 27 states offer the option of freezing your credit. Of those, 23 allow all consumers to freeze credit while the other four only allow it if you are the victim of identity theft. The move locks out creditors unless you personally unfreeze your credit report. Potential creditors, insurance companies or employers doing background checks cannot access your credit report unless you give your consent.

Although some states have waived fees for victims of ID theft, in most cases you will have to pay the credit bureaus or a state organization to place a credit freeze. The cost varies from state to state and among the bureaus, and you will need to notify all three bureaus of the freeze since they don''t share this type of information. You will also have to pay to lift the freeze, generally $10 per bureau to lift the freeze for a specific time period or $12 per bureau to lift it for a specific creditor. The freeze remains in effect until the consumer orders its termination.

While locking out potential thieves, the credit freeze also limits your ability to take advantage of instant credit or in-store credit offers. Applications for new employment could be affected since potential employers would not be allowed to do background checks with a freeze in place.

What is Credit Monitoring?

Credit monitoring services, which typically cost from $43 to $150 per year, watch your credit report and notify you when something unusual appears on your consumer credit report. Though often promoted as a prevention tool, credit monitoring does not prevent identity theft from occurring. Rather, credit monitoring may provide early detection of unauthorized activity to limit the amount of financial damage that you may suffer. The services also offer convenience by performing monitoring tasks that consumers could do for themselves, but may not have time for.

While early detection of identity theft can save you thousands, credit monitoring services cannot prevent theft, and in most cases, cannot aid victims in clearing up the problems created by the crime. "LifeLock''s aim is to prevent identity theft, but if one of our clients personal information is ever used while subscribing to our service, we will repair their credit and replace every dime they lost from the theft up to $1 million," says Davis. LifeLock members also receive annual credit reports from all three major bureaus, as well as quarterly updates when their fraud alerts are reset. The service also stops pre-approved credit offers and reduces the amount of junk mail members receive.

To learn more, visit www.lifelock.com.

Copyright © 2007, ARA Content