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Special section Guarding against ID theft: myths and real stories

Fraud alerts are free and expire on their own, but don't work like credit freezes. Learn the differences.

7 myths about fraud alerts

Fraud alerts generally let new creditors know you may be a victim of fraud and instruct them to take additional steps, such as calling you, before issuing credit.

Most people know that much -- but perhaps, not much else. While compiling recent reader responses to a newsletter query on fraud alerts and credit freezes, we discovered that many readers did not understand the difference between a fraud alert and a credit freeze, or held misconceptions about the way fraud alerts work.

Some wrote about fraud alerts as if they didn't expire for years. In reality, only the extended fraud alert lasts seven years -- and you'd know if you had one because you have to submit a copy of a police report documenting the identity theft to get the alert.

Others seemed to believe that creditors must call you to verify new credit applications. In a nutshell, that's not entirely true.

We decided it was time to set the credit record straight.

7 myths about fraud alert:
1.
2.
3.
4.
5.
6.
7.

We asked the credit industry about some of the biggest assumptions and added a few other important questions we thought were important to clear up. Clearing the fog of confusion that hangs over fraud alerts, here are the answers to some of the mistaken beliefs fluttering around.

May you be a little wiser about protecting your credit file from identity thieves.

1. You must have a suspicion of identity theft to raise a fraud alert.
While that's generally true, technically, anyone can set up a free 90-day fraud alert at any time. You merely have to claim that you believe you may have been a victim of identity theft. "There's no lie-detector test," says Maxine Sweet, spokeswoman for Experian. Only a seven-year fraud alert requires official documentation to prove the identity theft.

The credit bureaus will honor requests for fraud alerts, unless of course, the consumer doesn't have a credit file with that bureau.

2. The fraud alert requires creditors to call you.
No, it merely asks them to do so. The actual wording of the Fair Credit Reporting Act states that creditors must call the number provided (if one is given) in an initial or active duty alert or take "reasonable steps to verify the consumer's identity and confirm that the application for a new credit plan is not the result of identity theft." The law does not spell out what creditors must do. The creditor may take a number of actions, including calling the consumer at the number provided with the fraud alert, asking the applicant for more identification or simply denying the application. If the creditor does not have the time or the resources to take extra verification steps, the application may get denied.

Only extended alerts require the creditor to call the consumer or contact him in person before granting new credit. Not everyone can get an extended alert -- you must submit a copy of a valid identity theft report as part of the setup process.

Phone number or not, the issuer faced with an initial or active duty alert gets to decide how to treat it. "The credit grantor will follow the policies and procedures it has put in place to best protect the consumer," says Steven Katz, spokesman for TransUnion's TrueCredit.com.

Next: "Once a fraud alert expires ... it is gone like free money"
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