Five Ways to Foil Identity Thieves

By Abbi Perets

You're ready to drive that new minivan off the lot when the salesperson gives you the bad news: you didn't qualify for the loan. He shows you "your" credit report with numerous unpaid accounts. Until today, you thought you had perfect credit.

Sound far-fetched? Tell that to the three million people who were victims last year of identity theft. Identity theft can happen anywhere, but it's become more common online. In these schemes, fraudsters snoop around to find personal information you've stored on your computer. Or they steal account information you've entered online when paying your bills, shopping for the latest Internet bargains, or registering for a web site.

Once ID thieves snag your most sensitive data, they can then use your identity to open credit card accounts, cell phone accounts, auto loans and other forms of credit. "If a thief has your social security number and date of birth, he can look legitimate on a credit application," says Beth Givens, director of the Privacy Rights Clearinghouse, a nonprofit information and consumer advocacy organization. "I've seen people lose their dream homes because they suddenly can't qualify for a mortgage."

But you don't have to pull the plug on your computer just yet. You can reduce the risk of online identity theft by taking these steps:

1. Stay alert.
Have you ever gotten an email that appears to be from your bank or favorite online auction that says: "You must restore account access" or "Your credit card number on file is about to expire"? Well, most of these emails are actually sent by phishers, who will go to great lengths to create scam emails that look just like those of banks and merchants.

The links in these phishing emails look legitimate. But they actually take you to a spoof web site where you unknowingly enter your account information -- only to have it stolen. Delete emails that ask you to reveal sensitive information, because reputable companies will never ask for your account information via email.

You also need to beware of spyware. These programs sneak on to your computer through email and pop-ups. Then they gather data as you type, and send your passwords and other sensitive information to malicious hackers. To thwart ID thieves, download and install anti-spyware software to keep your computer -- and identity -- safe. 
 
2. Keep tabs on your information.
Here's the thing: Your online DVD rental service doesn't need your social security number to set up your account. Or when you're registering for a web site just to chat with other parents, you don't need to give away your real date of birth, home address or phone number. In general, be stingy with the data you give out online. Always read the site's privacy policy to see why it needs your data and how it will be used.

Also, monitor your accounts. Federal law entitles you to one free copy of your credit report each year. You can go to AnnualCreditReport to get a copy of your report and then go over it carefully. By taking this extra step, you'll spot potential red flags if an ID thief has stolen your information.

3. Set strong passwords.
If your digital passwords include words from the dictionary, your birth date, the year you graduated college, or the name of someone close to you (even spelled backwards) a criminal can easily figure them out on their own or with the help of specialized software.

When it comes to your online accounts and confidential files on your computer, use tough passwords. Create passwords with more than six characters, and combine letters and numbers. For example, you might create a password that sounds like something you can easily remember -- such as lyrics to your favorite song -- but is spelled cleverly with letters and numbers. 

If you've been storing sensitive information like your social security number on your hard drive, such as a PDF of your tax return, password-protect the file and put it on a CD instead. Of course, the strongest password is useless if you leave it out for anyone to see. So don't keep your passwords on or near your computer, which would be just like leaving your house key in the front door.

4. Never respond to unsolicited requests for money.
It might seem obvious, but thousands of people every year fall for online financial scams. In these cases, unsolicited emails might ask you to contribute to unfamiliar charities, or to get involved with real estate offers in other countries. These scams all have one thing in common: They ask you to provide your bank account information online to someone you've never met. Once the scammer has your information, he can use it to clean out your bank account or commit other types of fraud.

To play it safe, never respond to email offers asking you for your bank account number or for money. For instance, if you have a favorite charity, contribute directly through its secure web site.

5. Educate your kids.
Filtering software can help prevent your kids from sending out their home address and other personal information via email or the web. But experts say not to rely on technology alone. Make sure your kids know why you don't want them giving out private data or responding to phishing emails. Let them know that they can always come to you with questions if they're not sure what to do. Also, along with your kids, check out safety-tip sites like GetNetWise to make learning about online privacy a bit more fun.

Despite your best precautions, if your identity is stolen, your first call should be to the police. Report the theft and get a copy of your police report. You'll need it when you call the three credit reporting agencies to put a 7-year fraud alert on your account. Also file a report with the Federal Trade Commission. Remember, the earlier you catch identity thieves, the easier it will be to recover -- and to batten down the digital hatches in the future.