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How Identity Theft Works

January 10, 2012

Identity theft is the use of somebody else’s information to steal or defraud. Despite what a lot of people believe such theft is not a new crime, nor is it necessarily a high tech crime.

Identity theft can be anything from somebody trying to cash one of your checks to a cyber criminal hijacking your bank account. Not using computers or online banking will not protect you from identity theft. There are many different methods of stealing somebody’s identity out there. Among the most common are:

Trash Can or Dumpster Diving

This is an old low-tech method of stealing info but it’s still a highly effective one. The predator simply goes through trash cans or dumpsters until he finds documents with financial information on them. Then he uses the information to steal money.

Let’s say James threw out his old checks or bank statements and Joe Rat found them. Joe Rat could make fake checks with the account and other information on them and cash them. He could also use the information to get into James’ online banking and transfer James’ cash into his account.

The way to stop this is simple: shred, burn or rip up any piece of paper with confidential information on it. This includes checks, bank statements, anything with account information your driver’s license number credit card numbers or Social Security number on it.

Surfing or PIN Number Theft

This is another oldie but goodie there are several variations. The classic is that the thief simply watches while you enter your PIN number at the ATM. Another version involves a fake card reader that records your information. The crook puts this on an ATM or cash register. Then when you swipe your card the information goes to his computer and he can use it to access your bank or credit card account.

Accounts in Somebody Else’s Name

Another common tactic is for the crook to get somebody else’s Social Security number, insurance information or driver’s license. With this he can open accounts in your name. He can even apply for insurance or use your insurance.
This is why you should only give your Social Security number to people you trust. Never give out the number unless there is a valid reason for somebody else to have it.

Many criminals operate “phishing” scams which involve an e-mail or a phone call that asks for your information. This sometimes looks like an official communication from your bank or even from Paypal. Others may come from the IRS which never uses e-mail to communicate with taxpayers.

Combating Identity Theft

The best way to combat identity theft is to constantly monitor all of your accounts and insurance policies. Sign up for online banking on all of your accounts and check them at least once a week. You can even set up text or e-mail alerts that tell you of unusual activity. Watch for unusual activity and contest anything unusual.

If you lose any sort of ID or credit card report it at once. Cancel any credit card that disappears as soon as you can. If an insurance card goes missing contact the insurance company. Check the policy activity online to see if anybody else is using your insurance.

Predators are now targeting all sorts of accounts including brokerage and credit card accounts. Monitor them regularly and change the passwords regularly. Also make sure all information about accounts is secure keep paperwork in a hidden or secure lockbox or encrypted data device. Destroy any paperwork with account numbers on it as soon as you no longer need it.

If you feel particularly vulnerable you should check into identity theft insurance. Several major companies offer it and it can reimburse you for identity theft losses. Persons that travel frequently should get such insurance because travelers are more vulnerable to identity theft.

Steven Hart is a freelance writer and a Financial Advisor from Cary, IL. He writes about Annuity topics like Annuity Calculator, Annuity Interest Rates, and Annuities Good or Bad.

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