Data breaches have been in the news recently, and the headlines are scary. Today Farnoosh Torabi joins us to discuss protecting yourself from credit card fraud and identity theft.
All That Work
One of the most important things you can do for your financial health is improve your credit score. Having a good score makes life less expensive because of the higher your score, the better interest rates you get when you borrow money for things like buying a home or a car.
But if you are careless with your personal information, all of that work can be undone. Even if you are careful, you might still be at risk of having your data hacked.
“Equifax, one of the three credit reporting agencies in the US, announced that it was compromised between mid-May and July, potentially exposing Social Security numbers, credit card numbers, and other personal information for up to 143 million Americans.”
Credit Fraud
You don’t have to have your card stolen from you for your account to experience fraudulent charges. When a server takes your card away from the table at a restaurant to run it, they can steal the account number, expiration date, and security code just by writing those numbers down.
The data on a credit or debit card is on the magnetic strip. That can be “skimmed” by attaching a card reader to legitimate payment terminals like ATM’s and gas pumps. You can be “phished,” tricked into entering your credit card details into what you think is a legitimate site or even giving it out over the phone from someone pretending to be a representative from your bank or credit card company.
If a scammer has access to sensitive personal information like your Social Security number, date of birth, and mother’s maiden name, they can open new credit accounts in your name.
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Protect Your Accounts
If you think it’s the bank and credit card companies that should keep your accounts safe, you’re correct. And these companies have entire departments dedicated to doing so. But they can only do so much. The crooks are merely half a step smarter, so those tasked with protecting you are always playing catch up.
No one cares more about your money than you.
Tweet ThisScammers are smart, but they’re also lazy, so they are always going to look for the low hanging fruit first.That’s why some scams, like the old Nigerian prince ones, seem so ludicrous to anyone with a brain. Who would be dumb enough to fall for that?!
Well, plenty of people but the scammers want to weed out the people with functioning brains first, so they don’t waste time trying to scam someone who is not going to fall for it. Scammers are looking for dumb people but also careless people so you need to take the steps you can to protect your information.
Freeze Yo’ Self
One option to protect your credit is to freeze it. For about $30, you can freeze your credit report. Freezing prevents anyone from accessing the report. If lenders can’t pull the report, you cannot open a new account.
The problem with a credit freeze is that there are legitimate reasons for accessing a credit report. If you are applying for a loan like a mortgage or want to rent an apartment, the lender or landlord will pull your credit report to see if you are a good risk.
The account holder can lift a freeze for another fee, but if time is an essential factor, to lock in a particular interest rate on a loan or to get an apartment before other applicants, you may miss out. It can take a few minutes or a few days for a freeze to be lifted.
You will also need to institute and pay for a freeze with all three major credit bureaus, Equifax, TransUnion, and Experian. Different lenders pull from various bureaus. So yes, a freeze does come with some hassles, and you do have to pay for it, but the troubles and possibly costs are nothing compared to what you will have to deal with if you get hacked.
Lock it Up
A credit lock is another option, and it’s not that different from a freeze, but a freeze provides better protection and is usually less expensive. And according to some consumer groups, a freeze offers better protection to consumers,
“Having a contractual agreement is not as strong as having protections under law,” Tetreault says. “The contract may be unclear, may include provisions that allow the other party to change it, or include provisions that you may be better off not agreeing to, such as an arbitration agreement,” she says.
A freeze is guaranteed under the law while a lock is just an agreement made between the consumer and the credit monitoring company. You can institute a freeze with all three credit reporting agencies.
Credit Monitoring
Your credit report is a summary your borrowing and repayment history. It also contains credit inquiries, which are done by lenders when you apply for loans and credit cards, overdue debts in collections and public record information like bankruptcies, wage garnishments, and liens.
You can sign up for a credit monitoring service, and they will alert you when there is a change to your credit report. The problem with this is the lag time. These services only warn you when suspicious activity shows up on your credit report, and that can take weeks. By the time you’re made aware, it may be too late.
DIY
A credit monitoring service doesn’t do anything that you can’t do yourself and for free. You are entitled to one free copy of your credit report every twelve months from the three reporting agencies. You can get that information at Annual Credit Report.
To monitor your credit closely, you should get a report from one agency every four months. This way you can check your report more than just once a year. The reports will vary from agency to agency. You are not only looking for fraud but mistakes too.
A name or Social Security number could be slightly off, or payments applied to the wrong account. If you find an error, you can dispute it. Under the Fair Credit Reporting Act, the credit reporting agency and the organization that provided faulty or incomplete information are responsible for correcting errors on your credit report.
Contact the reporting agency and tell them what information is incorrect and provide any supporting proof. You can dispute misinformation here.
The claim must be investigated within 30 days unless it’s deemed frivolous. The agency is responsible for providing corrected information to the organization that provided what you are disputing.
Watch Your Numbers
Your credit score is a number between 300-850 that tells potential creditors how creditworthy you are. The higher your score, the lower the risk that you will not pay the money back. Six factors make up your credit score. Each of the three credit beauties will give you a slightly different number, but they will be similar.
There are lots of ways to get your credit score for free. Sites like Credit Karma and Mint give you a ballpark score. Some credit cards including Chase Slate, American Express, and Discover, give you a credit score.
Monitoring your credit score can alert you to fraudulent activity. If you have a 760 one month and a 600 the following month, there is likely to be some fraud on your accounts. A credit score fluctuates but a dramatic change in a short amount of time is an indicator that something is not right.
On Alert
Because fraud is a hassle for banks and credit card companies too, they have an interest in preventing it. Many credit cards including Chase Slate come with fraud alerts that notify customers of potentially fraudulent charges. If the company sees what they consider an unusual charge, they will inform you, and ask if you made the purchase.
If you did not, the card would be frozen, and you’ll receive a replacement card. Many cards also offer Zero Liability Protection so if there is a fraudulent charge; you are not responsible for it. You can set alerts for your debit card too and receive notifications if there is a charge over a specific dollar amount or if there is a purchase made without the card present. These alerts are a little annoying if you do a lot of online shopping but less annoying than dealing with fraud on your account.
Credit or Debit?
We can’t think of a good reason to use a debit card if you can use a credit card. Having your credit card hacked is a mild annoyance. You have to call the bank, get a new card, and update the saved card number for things you buy online.
Having your debit card hacked will be a much bigger problem. While banks do refund you for unauthorized charges, it can take some time. And during that time, that money is gone which could be disastrous for things you don’t pay with a credit card like your mortgage.
Use a credit card whenever you can, provided you have the money to pay the balance off when the payment is due.
Shop Safe
When you shop online, look for a little padlock and https on the address bar. The padlock means that the site’s identity has been verified and secured with an Extended Validation SSL Certificate. If you’re shopping in the real world, be wary of vendors that still swipe your card rather than using a chip reader.
Chipped cards aren’t a guarantee against fraud, but they do offer some additional security.
Genius!
Do you use a site like Dashlane or LastPass to store your passwords? Doing so can help protect your accounts because you can make better passwords than Password123 since you don’t have to remember them.
But what if you get locked out? You get an e-mail through which you can reset the password. What email address is it sent to? The only one you have, the one that you give out like Halloween candy and have printed on your business cards?
Thomas has a great idea. He uses a dedicated email address for password resets. No one else has it but him so he knows those reset emails won’t fall into the wrong hands.
Your Own Worst Enemy
Some of us don’t need scammers to ruin our credit; we manage it all on our own. There is no point to protecting your account information if your credit score is 300 because you don’t manage your money.
Of the six factors that make up your credit score, on-time payments are the most important. If you are late paying your bills, you need to make a budget, so you have more coming in than going out. If you miss payments, not because you don’t have the money but because you are disorganized, get organized.
Set up alerts on your phone a day or two before a bill is due. Set up autopay, so you don’t have to do anything at all. That said, auto pay is no excuse not to go through credit card statements each month to look for fraudulent charges.
Call the company and ask them to waive a late fee. It doesn’t always work, but it’s worth a try.
Remember, this is your money and your credit. Monitor your credit score, your credit report, and all of your bank and credit card statements regularly so you can nip fraud in the bud before it does too much damage.
Show Notes
Grimm Artisanal Ales: A dry hopped sour ale.
Tool Box: All the best stuff to manage your money.
Investable: Research and evaluate rental properties.
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Candice Elliott is a substantial contributor to Listen Money Matters. She has been a personal finance writer since 2013 and has written extensively on student loan debt, investing, and credit. She has successfully navigated these areas in her own life and knows how to help others do the same. Candice has answered thousands of questions from the LMM community and spent countless hours doing research for hundreds of personal finance articles. She happily calls New Orleans, Louisiana home-the most fun city in the world.
