How to outsmart identity thieves

As criminals get more and more sophisticated, consumers and banks have to become more careful about protecting their vital information and their bank accounts. The good news is that this vigilance is apparently working. According to a survey from Javelin Strategy & Research, a record low number of Americans -- approximately 8.1 million people, or 3.5 percent of the population -- were victims of identity fraud in 2010. This is 27 percent fewer people than in the previous year and the lowest it's been since Javelin began the annual survey in 2003.

Higher costs for victims

Unfortunately, the remaining cases are the ones that are harder to detect and resolve, which can mean higher out-of-pocket costs for fraud victims. While the majority of banks and credit card companies offer zero-fraud liability protection, costs for fraud victims may still include legal costs, credit monitoring expenses, and lost wages from the time it takes to resolve the fraud. This can especially be an issue when the hardest cases to solve also take the longest to process.

Preventing identity fraud

The best way to defend your checking account and credit card accounts from fraud is by taking precautions to prevent identity theft in the first place. Javelin has the following suggestions to protect yourself from identity fraud:

1. Protect sensitive information. Identity fraud isn't always committed by nameless, faceless thieves over an Internet connection--it can be someone you know. Secure your personal information in a locked storage box or password-protected file, and make your password strong. This means no birthdays, names of pets, sequential numbers, or anniversary dates, which can be especially ineffective if the thief knows you personally. Change your passwords regularly, and don't use the same password for all of your accounts.
2. Monitor your accounts. At least once a week, check your account statements online, via personal finance mobile apps, or using touch-tone banking. The earlier you catch fraud, the easier and faster it is to resolve.
3. Take advantage of security alerts. A smart phone can save money and time lost to ID fraud. Javelin found that one of the most common ways for identity thieves to hack into your account is by changing the physical address. To counteract this, sign up for security alerts to be sent to your phone (or email account) that will notify you if there are any changes made to your account information.
4. Get your free credit reports. New account fraud is one of the most difficult types of fraud to detect because the only way consumers will know about it is if they use a credit monitoring service or check their credit reports often. You can get one free report per year from each credit bureau, but stagger them every four months. Since each bureau receives similar information, you'll be able to monitor your credit for free.
5. Social media users, beware. According to Javelin's findings, Facebook and Twitter users should be especially cautious. If you have used social media tools for at least five years, you are twice as likely to become a victim of identity theft, and therefore should be even more vigilant about checking your credit reports. Don't give out your birth date, email address, mother's maiden name, pet's name or other identifying or personal information on social networking sites, and use privacy settings to restrict who is able to view your profile.
6. Act on fraud alerts. If you receive notice that an account of yours was compromised, take action. Consumers who receive fraud alerts are four times more likely to become victims of identity theft. Confirm that the letter is legitimate using the financial institution's official website or the telephone number listed on statements and the back of bank or credit cards. After you've confirmed it's not a scam, take advantage of free protection services that might be offered, and have a fraud alert put on your credit report. A fraud alert means lenders will have to confirm that you are the one applying for any new lines of credit.

Finally, should you become a victim of identity fraud, contact your financial institution immediately. Working with your bank as soon as possible after the fraud occurs will reduce the hours and out-of-pocket costs to resolve the fraud.

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