Identity theft occurs when a person uses another person's Social Security number, credit card number or other sensitive information to make unauthorized purchases, to commit fraud or to commit other crimes. According to the Federal Trade Commission (FTC), an estimated 9 million Americans are victims of identity theft every year. While the number of incidents has dropped, the cost per incident has grown. For instance, in 2009, the average cost per incident of identity theft was $387. In 2010, the average cost per incident increased 63 percent to $631.
Most Common Crimes Associated with Identity Theft
Many identity thieves open new credit cards in their victims' names. They then run up charges on these cards and fail to pay the bill, leaving the victim liable for the costs. An identity thief may also change the billing address of a current credit card account and then start charging the account. Since the bill goes to a different address, the victim doesn't realize for some time that he or she has incurred extra charges.
At the bank, identity thieves often obtain counterfeit checks in a victim's name. They may open a bank account, take out a loan or use an ATM or debit card in an unauthorized way. Some identity thieves file false tax returns or try to obtain drivers' licenses or Social Security cards in their victims' names. With these types of ID, they may then try to secure government benefits, medical care or residences in the victims' name.
Most Common Methods of Identity Theft
The FTC reports that many identity thieves dig through a victim's garbage looking for papers containing sensitive financial information. Also, identity thieves engage in a practice called phishing, during which they send an email or text message pretending to be a financial institution and ask for a person's personal information. Some criminals attach skimming devices to ATM machines or other card terminals, obtaining personal information during the transaction and then recovering the information from the device. Still others simply steal a victim's purse or wallet, mail, new checks, tax information or personnel records.
The FTC recommends a three-pronged approach that victims can use to prevent identity theft. The first area, prevention, means taking steps to protect personal information. Leaving extra credit cards, Social Security cards or other sensitive documents at home will ensure that those documents aren't taken if a purse or wallet is stolen. New checks should be picked up at the bank instead of mailed to a residence, and no checks should display the account holder's Social Security number.
Before putting sensitive documents in the garbage, people should shred items such as pre-approved credit card offers, receipts, bank statements and returned checks. If someone calls pretending to be from a financial institution, then customers should avoid giving personal information over the telephone. Finally, consumers should make sure that their employers, landlords or others with personal data keep that information secure.
The FTC's second recommendation is identity theft detection. Consumers should take note of bills for services or products that they did not purchase. Any unauthorized transactions from a bank account should be investigated, and any unfamiliar items on a credit report should be immediately disputed. The U.S. government provides a copy of every consumer's credit report once annually from each of the three credit bureaus: Equifax, Experian and TransUnion. Instead of checking all three reports once per year, consumers should review one report every four months so that they are keeping an eye on their credit year-round.
Sometimes, identity theft victims may notice unusual health expenses or other items. For instance, their health insurance providers may reject a claim, saying that the insured person has reached his or her maximum benefit. Medical providers may send bills or health insurance providers may refuse coverage based on conditions that the person doesn't have. The IRS may send notice of someone filing a duplicate tax return in the person's name, or a company holding the person's sensitive financial information may disclose a data breach.
The third step, defense, involves stopping the identity theft before more damage takes place. Consumers should call the three credit bureaus and place fraud alerts on their accounts. They should review their credit reports and file identity theft complaints immediately. A credit freeze stops all requests to look at a victim's credit report. Finally, victims should involve law enforcement so that criminals can be brought to justice.
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