Sometimes it feels like the only stories in the news these days are about data breaches. Just this week alone, the Identity Theft Resource Center has reported a whopping 480 breach cases, a 21.5 percent increase over the same period last year. Between breaches of major retailers such as Neiman Marcus and Michaels, to financial institutions like American Express (AXP), millions of consumers' social security numbers, credit card numbers, account details, passwords and other forms of personal information have been stolen, costing merchants billions of dollars and creating countless headaches for the unfortunate victims of fraud.
More importantly, identity theft can ruin your credit history and cause you to be unfairly denied for credit or have to pay outrageous rates and fees that you don't deserve.
Since data breaches probably won't stop anytime soon, now's the time to proactively protect your credit before irreversible damage occurs. Here are some strategies to maintain your good name:
1. Secure your devices and online accounts. While mobile devices often make our lives easier, they're also great opportunities for thieves to steal your information. With this in mind, limit the chances of your identity being compromised by password-protecting your devices and taking advantage of the auto-lock function, no matter how annoying it may be to input a code each time you want to access your device. Keep your malware protection software updated, and constantly run tests to ensure your computer is virus-free.
You've probably heard this countless times, but one of the best ways to secure your online accounts is by choosing strong passwords. Password123 may be easy for you to remember, but it's also super easy to guess. Instead, build long, complex passwords that include different letter cases, numbers and symbols and don't include parts of your Social Security number, date of birth or other identifying information. Even better, use a program like LastPass to generate random and ultra-secure passwords for you. Also change your passwords regularly -- not just when you hear of a data breach.
Lastly, get into the habit of logging out after you've completed your session, even if you're using your own device (and especially if you're using someone else's or a public computer). This can help prevent others from snooping around, and it only takes a second!
2. Shop safely online. With 24/7 access, no crowds and variety, online shopping is often a convenient alternative to brick and mortar stores -- that is, if you're careful about where you shop. Internet scams are becoming more elaborate, so do your research before entering your personal information online. In particular, look for these signs that may help indicate a site is trustworthy:
It encrypts your personal information. If the company's URL begins with "https" and/or has a padlock icon next to it, it indicates that it has security measures in place to prevent others from accessing your personal information.
Other people trust it. Visit the company's Better Business Bureau page or read reviews and complaints to see how they've treated previous customers.
Keep in mind that no matter how secure a site is, your information may still be vulnerable if your Internet connection is not secure. Public Wi-Fi is fine for casual browsing, but hold off on important tasks like paying bills and purchasing items until you're on a private network.
3. Shred documents that contain personal information. It may seem old-fashioned, but this standard piece of advice still rings true. If thieves sort through your trash or recycling bin and find forms, bank statements, credit card bills, receipts or other documents that contain personal information, they could easily piece together enough data to create fraudulent accounts in your name. Buying and using a shredder to destroy confidential material is a quick and easy way to minimize this possibility.
4. Proactively guard key information. A huge part of protecting your identity comes down to you. While it's great to see the best in people, adopt a skeptical mindset when it comes to sharing your personal information. Question why someone is asking for it, and withhold as many details as you can. Did you know that providing your ZIP code, phone number or email address to retailers isn't typically mandatory? Merchants usually just use this information to create a profile of you. Financial institutions also seldom solicit sensitive information via email. If you receive a legitimate-looking email asking you to click on a mysterious link or requesting your Social Security number or password, call the official customer service number or go directly to the site, just to be safe.
Another way to protect yourself is to limit what you bring with you. While carrying around all of your credit cards and login information may feel easy and convenient, your life could easily turn into a nightmare if someone steals your wallet or purse and your identity disappears along with it. Do yourself a favor, and carry only what you need.
5. Check your credit and financial accounts regularly. While this technically won't help prevent identity theft, monitoring your credit report information, account balances and financial transactions regularly may be one of the best ways to quickly catch fraud and stop it before it gets out of control. There are many great services that can help you keep an eye on your finances for free; CreditKarma.com offers a free credit monitoring service that will notify you when something significant changes on your credit report. Mint.com allows you to easily see your financial accounts all in one place. And pulling and scrutinizing your credit reports from the three major credit bureaus each year from AnnualCreditReport.com is highly recommended to help you spot and dispute errors to keep your credit history accurate.
The Bottom Line: Your credit score is an extremely important factor that may affect whether you're approved for credit and how much you'll pay to borrow. Don't wait until identity theft happens to you -- by putting time and effort into protecting your information today, you may save a lot of hassles in the future.
Jenna Lee is the social media manager for Credit Karma, a free credit monitoring website that helps more than 22 million people access their credit score for free.
7 Costly Myths About Banking, Credit Cards Debunked
5 Ways to Protect Your Credit
Yes they can.
The CARD Act did get rid of the most outrageous abuse: they can no longer increase the interest rate on existing balances unless you go 60 days past due.
However, you need to remember that:
Most credit card interest rates are variable and are linked to the prime rate. Your high rate will only go higher when interest rates increase.
Based upon risk, your credit card company can still increase your interest rate on all future purchases. Your existing balances are protected, but future purchases would be at the higher rate. And determining risk is not limited to your behavior on your existing card. If you miss a payment with another lender, that could lead to an increase on all of your credit cards.
After 12 months, they can increase your rate for almost any reason. But the increased rate only applies to future purchases, and they need to give you 45 days notice.
Credit cards are incredibly expensive ways to borrow money. If you use a card, your goal should be to pay off the balance in full every month. Then, the interest rate doesn't matter.
Bottom line: If you do have debt, you should never be paying the purchase APR. Look for a balance transfer, or get a personal loan to cut your interest rate. And take a long hard look at your spending to put more money towards paying off that debt.
No, they are not.
There is a big difference between a 0% balance transfer (where the interest is waived during the promotional period, discussed above) and 0% purchase financing offered at many stores (where the interest is only deferred).
I regularly encourage people to use balance transfers to help them pay off their debt faster. With a balance transfer, interest is switched off or reduced during the promotional period. Once the promotional period is over, interest starts to accrue on a go-forward basis. This can take years off your debt repayment.
But stores offer 0 percent financing at the checkout. With a lot of these programs, interest is charged from the purchase date if you do not pay off the balance in full during the promotional period. So, if you have a 12-month 0 percent offer -– and do not pay off the balance in 12 months -– then in month 13 you will be charged a full 13 months of interest. They retroactively charge interest, and it will be like you never had a 0 percent offer at all.
This is a common practice. Online, Apple (AAPL) does this, via their partnership with Barclaycard (BCS).
Bottom line: I don't like deferred interest deals. Most people do not understand the difference between waived and deferred interest, and this practice feels deceptive. If you take one of these offers, make sure you pay off the balance in full before the promotion expires.
Credit card companies have different rates for different types of transactions. The interest rate charged on a purchase (high) is different from a balance transfer APR (low).
Before the CARD Act, banks would apply your payment to the lowest APR balance first. Imagine you have a $1,000 balance. $500 is at 0 percent (balance transfer), and the other $500 is at 18 percent (purchase). If you make a $100 payment, banks would apply that to the balance transfer. That way, they reduce the balance transfer (at 0 percent) to $400, while protecting the $500 purchase balance (at 18 percent).
The CARD Act changed that. Banks now need to apply payments to the highest interest rate first. But this only applies to payments higher than the minimum due.
If you only pay the minimum due every month, your payment will still likely be applied to the lowest interest rate balance first.
Bottom line: You should never spend and have a balance transfer on the same credit card. Banks can only "trap" balances when you have multiple balance types on one card.
Not exactly true.
The CARD Act has stopped the handout of T-shirts on the steps of the school libraries, but they can still give sign-on bonuses. And they advertise on campus. For example, Citibank (C) has a "Thank You Preferred" card for college students. If you spend $500 in the first three months, you get 2,500 thank you points as a bonus. That is $25 of value.
Bottom line: I actually find this worse. Before, you got a free T-shirt just for signing up. Now, the credit card companies encourage spend on the card for the "free gift."
In the past, banks would charge you a fee if you went over your credit limit. Today, the CARD Act requires banks to receive your consent to charge an over-limit fee. So, in most cases, banks just eliminated those fees -- which is good news (kind of).
You can still go over your credit limit, if the bank approves your transaction. But the full amount by which you've exceeded your limit will be part of your minimum payment come the next bill, which could cause a payment shock.
More importantly, utilization (the percentage of your available credit that you use) is a big factor in your credit score. Your credit score determines the price you pay for credit. So, if you're over-limit on an account, you are considered riskier. That can result in the credit card company increasing your interest rate. And it could also result in other lenders increasing your rates with them. So you do pay, but it's an indirect cost.
Bottom line: We're glad the fee is gone, but you still need to be diligent and try to avoid going over your limit. If you pay your balance in full every month but are frequently bumping up against your credit limit, ask for a credit line increase.
I have heard from so many people that the way to eliminate overdraft fees is to opt out of overdraft protection. But it is impossible to completely opt out of overdraft.
Federal regulation requires consumers to opt into overdraft protection only for debit and ATM transactions.
But, the regulation does not cover checks and electronic transactions (including bill-pay and monthly direct debits, like gym memberships). The banks have all the power. If they approve the transaction, you would be charged an overdraft fee (typically $35 per transaction at banks and $25 at credit unions). If they decline the transaction, then you would be charged an NSF fee (non-sufficient funds), which is usually just as expensive as the overdraft fee.
Bottom line: You can't opt out of all overdraft fees. To avoid them, keep a buffer or find an account, like Ally, that doesn't charge those junk fees.
Not always true.
To be protected, you need to report the fraudulent transaction within 60 days. Otherwise, you give up a lot of your rights.
On ATM/debit cards, the bank can make you responsible for up to $500 of fraud if you report more than two days (but less than 60 days) after the transaction. On a credit card, you would never be liable for more than $50 (and most banks won't even hold you accountable for $50.)
One area where you will almost always lose is when your Personal Identification Number is used. If someone manages to get your PIN and takes money out of your account, then the bank will almost always assume that you authorized the transaction. Make sure you change your PIN often and never write it down.
Bottom line: Avoiding liability it your responsibility. Track your transactions regularly and call as soon as you detect any suspicious activity. And make sure you never share your PIN with anyone, or make it obvious.