Arnd Wiegmann/Reuters
A credit freeze isn't a cure all.
- Prior to the Equifax breach, over 4 billion personal records were stolen last year alone.
- Only 4% of identity theft victims had a new account opened in their name, which a credit freeze protects against.
- Freezing your credit will not prevent the most common type of identity theft: misuse of current accounts.
In the wake of the Equifax breach, identity theft horror stories have been easy to come by.
The solution, according to many experts, is freezing your credit - something hardly anyone has actually done.
But a credit freeze only protects against new accounts being opened in your name - one of the rarest types of identity theft out there, affecting only 4% of victims, according to the most recent Bureau of Justice Statistics (BJS) data.
It's not because criminals haven't had access to Social Security numbers before.
A 2015 data breach at health insurance company Anthem exposed personal information, including Social Security numbers, for 80 million people. A class action lawsuit was settled this summer, awarding $50 to each person who was affected. Last year, 4.2 billion personal records were stolen. If someone really wants your data, it's probably already out there.
The majority of identity theft victims - 86% - experienced the relatively innocuous crime of fraudulent use or attempted use of a current account, such as a credit card or bank account, according to the most recent Bureau of Justice Statistics (BJS) data.
News coverage of the Equifax data breach made it seem as though half of Americans' financial future was over. Although identity theft following the breach is a risk, it's not a guarantee. And if it happens to you, your chances of buying a home or opening another credit card are not ruined forever.
"The good news is you know all of your own history, and this breach is so well known and far reaching that if you are a victim, it should be easier than usual to fight," Mark Nunnikhoven, head of cloud research for cybersecurity firm Trend Micro, told CNN.
Resolving credit issues is a headache - but not impossible
Even when missteps on your credit report are your own doing, resolving them can be easier than you think. As a financial planner in New York City, I've helped multiple clients improve their credit scores, including one client whose score increased to the mid-700s from the low-500s in three months. It's not because I have the magic touch. It's just a matter of making calls and submitting documents until the issues are resolved. In some cases it takes longer, but even bankruptcy falls off your credit report eventually.
Victims of identity theft - who are more likely to be white and have annual incomes over $75,000 - spent an average of seven hours resolving problems associated with the crime, according to the BJS. Since banks and credit card companies typically reimburse for unauthorized account use, only 14% of victims suffered an out-of-pocket financial loss. Among those who did, the median amount was $100.
Still, identity theft is a violation. Companies should have better cybersecurity in place, but even when large systems fail there are ways you can protect your identity. The BJS found that 85% of Americans already take steps to prevent identity theft, from shredding documents with personal information to changing passwords.
Rather than stressing out over the Equifax breach, here's what you can do now to prevent potential headaches if your identity is stolen now or in the future.
Protect your credit and identity after the Equifax breach:
- Monitor your current accounts daily or weekly. Use an account aggregation app like Mint.com or log into your various accounts to make sure all charges were made by you. If you see something suspicious, contact your bank immediately.
- File your taxes early. The IRS is cracking down on tax fraud, but we could see an uptick after the Equifax breach. Get your tax information organized early, and submit your return as soon as you receive your W-2 and 1099 forms. Added benefit: If you're due a refund, you'll get it sooner, and if you owe taxes the amount isn't due until April 15 regardless of when you submit your return.
- Use secure passwords and two-step verification. Given the fact that most identity theft occurs with accounts that already exist, one of the best things you can do is safeguard your data online, especially for accounts that contain identifying information and credit card or other financial data.
- Set up alerts for new credit activity. Save yourself money and use a free credit monitoring service, like CreditKarma or Credit Sesame. If you'd rather set up a fraud alert or credit freeze, that is an option as well.
- Check your credit reports regularly. You can access one free copy of your credit report from each of the three bureaus once a year through the government sponsored AnnualCreditReport.com. Set a calendar alert to remind yourself to do this every year, or you can pull one report every four months to be extra vigilant. While you're at it, there may be things you can do to improve your credit score, fix any errors on your credit report, and optimize your current collection of credit cards.
- Choose identity verification questions and answers carefully. Additional identity verification questions can help keep accounts secure, but not if you choose questions such as, "What street did you live on when you were growing up?" or "Where were you born?" that could be easily answered with access to your social media account or other personal information.
If you have been a victim of identity theft, the Federal Trade Commission has a step-by-step recovery guide.