Consumers concerned about identity theft have good reason to worry. According to the customer advocacy group Consumers Union, more than 8 million people in the United States have their identity stolen each year.
Identity theft can take many forms, but one type of fraud occurs when an unauthorized credit account is opened.
Two major tools -- fraud alerts and security freezes -- can help consumers fight back against such an action, says Tod Burke, a criminal justice professor at Radford University in Radford, Va.
"We're not going to always prevent identity theft, but alerts and freezes can help minimize the chance of it happening," Burke says.
Fight back against ID theft
Worried that you may be a victim of credit fraud? Contact the three major credit reporting agencies: TransUnion
A fraud alert is a notation placed on a person's credit report that requires potential creditors to verify a borrower's identity before any new credit is issued in his or her name.
In comparison, a security freeze, also called a credit freeze, prevents potential creditors from viewing a credit report at all. This means no one -- not even you -- can open a new line of credit in your name unless the freeze is lifted.
Consumers can use one or both tools to help protect their credit, Burke says. Following are descriptions of how these options compare in five different areas:
1. FeesIt costs money to initiate a security freeze with each of the three major credit bureaus, up to a total of about $30, says Mari Frank, author of the upcoming book, "The Complete Idiot's Guide to Recovering from Identity Theft."
Frank says the exact cost depends on a borrower's state of residence, whether the borrower is a senior citizen, and whether he or she already is a victim of identity theft.
On the other hand, fraud alerts don't cost anything. In addition, consumers who put an alert on their records are allowed to get a free copy of their credit report with each of the major credit bureaus, Frank says.
Consumers initiate security freezes and fraud alerts by contacting all three credit reporting agencies, TransUnion, Equifax and Experian. Requests can be made via the agencies' Web sites, by telephone or by mail.
"I would recommend making any request to the bureaus in writing," Burke says. "It may add a few days to the process to mail it in, but it's a good idea to have written correspondence for your own personal records."
2. Strength of protectionFraud alerts tell potential lenders to verify a person's identity before issuing new credit. However, there are no specific rules for doing this verification, and many consumer advocates are concerned that potential creditors don't do enough to confirm a borrower, Frank says.
"It's frustrating to have an alert if it has no teeth," she says.
By contrast, security freezes don't allow new creditors to look at a file at all.
"It puts a lock on your credit," Frank says.