Preventing identity theft: two tools that offer a little peace of mind

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While signing up for a credit card fraud-protection program can lead to some unintended inconveniences and hassles, having your identity stolen can lead to much more dire consequences, including months of frustration and steep financial losses -- some of which may never be recouped.

Fortunately, there are two services that are being offered by the three credit bureaus that aim to prevent thieves from obtaining credit in your name: fraud alerts and security freezes. As Bankrate points out, there are some inconveniences - and in some cases, some costs - involved in using these tools, but it may be worth the extra peace of mind.
A fraud alert is a free service that requires a lender to verify the identity of someone when they claim to be you and seek credit. It doesn't cost anything, lasts for 90 days unless you request a renewal and doesn't create much hassle for you if you want to legitimately take out a loan.

But a fraud alert also has some drawbacks, says Amber Stubbs, managing editor for CardRatings.com. While a fraud alert is a good protection in theory, there are no specific, enforceable criteria to which a lender must adhere in order to honor it. "The law is very specific about ID verification for extended alerts," Stubbs told Walletpop. "But for an initial alert a potential lender must only use 'reasonable policies and procedures' to verify identity." The initial alert is what you'll get if you call the bureaus and ask for fraud alert protection. You can only get an extended alert if you've already had your identity stolen, unfortunately.

An even more drastic measure than the fraud alert is the full-on credit freeze. This is exactly what it sounds like: A would-be thief can't obtain credit in your name. The rub, though, is that you can't, either. For this reason, experts don't recommend a credit freeze for anyone who plans to take out a loan, open a credit card or obtain a mortgage in the near future.

A freeze lasts until you decide to cancel it. There's also a nominal fee (up to around $30 if you get one from each of the three bureaus, according to Bankrate). To get a credit freeze suspended or removed, you need to contact each of the credit bureaus.

"Both of these methods primarily help you to avoid new fraudulent accounts being opened. Neither do much to thwart existing fraud or prevent fraud on existing accounts," says Stubbs. In other words, keep an eye on your statements for unauthorized activity even if you have one of these protections in place.
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