If your identity is stolen, you may have trouble obtaining credit or getting a good interest rate, and creditors may pursue you for debts you haven’t incurred. You may even encounter problems when applying for a job because of fraudulent, negative information that appears on a background check. For all of these reasons, and more, if you become a victim of identity theft, you need to begin working to clear your name immediately. Here are the basic steps to take.

File an Identity Theft Report

Get a physical copy of the report, as you’ll need it for later steps in the identity recovery process. Also, get the name of the officer who took the report, the report number and a phone number for follow-up inquiries.

Call Equifax, Experian and TransUnion

These are the three credit bureaus that will use their dedicated fraud reporting phone numbers and automated systems to place a fraud alert on your credit file. A fraud alert notifies the credit agencies that your identity has been compromised. An initial fraud alert lasts for 90 days, and an extended fraud alert lasts for seven years.

The initial alert is more appropriate when you aren’t yet certain that you’re a victim. For example, you would file an initial alert if your wallet was stolen but fraudulent activity hadn’t cropped up yet. The extended alert is more appropriate if you know you’ve been a victim, because it requires creditors to take extra steps to verify your identity before issuing new credit in your name.

If you want to take an additional step to protect your identity, place credit freezes on each of your credit reports. A credit freeze prevents new creditors from accessing your credit reports, which should prevent them from issuing new credit. Identity thieves will be locked out, but so will you. You’ll have to unfreeze your credit any time you want to apply for new credit. Placing and thawing a credit freeze normally costs money, but in some states this service is free to identity theft victims.

Close Affected Accounts

If you’ve had any sensitive information stolen, close all accounts associated with that information. For example, if your wallet is stolen, immediately close the accounts associated with all the credit cards in your wallet. If information about your checking account was in your wallet, close your checking account, too. If your driver’s license was stolen, contact your state’s department of motor vehicles to notify them of the theft, and request a new card. If your health insurance card is stolen, notify your insurance provider and request a new policy number to stave off medical ID theft.

Examine Your Credit Reports Carefully

Identity theft victims are entitled to a free copy of each of their credit reports. Request yours when you place the fraud alert. If you find any fraudulent activity, contact the creditors associated with that activity, and ask them to send your application and transaction records, which is your right under section 609e of the Fair Credit Reporting Act.

Creditors may require a copy of your police report before turning over this information, and you may have to wait several weeks to receive it, as the credit agencies have up to 20 days to send it to you. Once you receive the paperwork, provide the evidence of the fraudulent transactions to the police department that took your initial report to help build your case. Also, report the fraudulent accounts to the credit agencies using a correction of errors form. The Fair Credit Reporting Act requires credit bureaus to remove inaccurate, or fraudulent, information from your account.

Finally, send letters to the creditors, associated with the fraudulent activity, notifying them that the accounts are fraudulent, and that you want them blocked from your file. Use form letters ITRC 100-1 and 100-3, available for free, online, from the Identity Theft Recovery Center.

Obtain Letters of Clearance From Each of the Credit Reporting Bureaus

In these letters, the credit bureau acknowledges that an investigation proved that your case was identity theft. These letters will help you if fraudulent accounts resurface on your reports in the future. They will also help you if a collection agency contacts you to pay a debt an identity thief incurred using your information.

Keep a Close Watch on Your Bills and Mail

If your identity is stolen, more than one ill-intentioned person may end up with your data, because thieves sometimes sell stolen information. Even after you clear up the initial problem, a new problem may appear later on.

The Bottom Line

Keep records of all contacts with law enforcement, creditors, credit bureaus and debt collectors. Also, keep copies of all correspondence. Send any mailed correspondence by a traceable method that allows you to confirm and prove delivery. Get detailed, written confirmation of any steps third parties take on your behalf (such as closing fraudulent accounts). Keep receipts for any expenses you incur in the process of clearing your name.

“What To Do If Your Identity Is Stolen” was provided by Investopedia.com.

When it comes to protecting your credit from identity theft you have a variety of options. You can do nothing. You can pay to monitor your credit reports. Or, you can freeze your credit reports.  Each has their pros and cons, as more fully described below.

Do Nothing

I didn’t include “do nothing” to be funny, even though I like my writing to have some sense of humor.  The vast majority of people, in fact, do nothing to protect their identity, which doesn’t necessarily mean they’re at greater risk of being a target. The fact that you have an identity means you’re a target and even the most diligent shredder of personal documents is still just as much of a target as someone who dumps their tax returns in their garbage.

Even people who do nothing enjoy significant protections under the Fair Credit Reporting Act (FCRA), the Fair Credit Billing Act (FCBA) and the Electronic Fund Transfer Act (EFTA). The FCRA mandates that the credit reporting agencies add fraud alerts, provide free credit reports and block information resulting from identity theft. The FCBA is the law that limits your liability for credit card theft to no more than $50. And, the EFTA is the law that limits, somewhat, your liability if your debit or ATM cards are stolen and fraudulently used.

Credit Monitoring

Credit monitoring is a service offered by the credit reporting agencies and a small number of other companies. These services are almost always offered for a fee (either monthly or annual). They are very high margin, which is why they’re the primary service being sold by the credit bureaus and other companies online and via their television advertising.

Credit monitoring is often referred to as being a “reactive” approach to identity theft protection because something bad has to happen to your credit reports before you’re notified. Monitoring doesn’t really prevent the fraud from occurring. It just hopes to notify you soon enough after the fraud has occurred to prevent any real damage.

Monitoring services look for credit report changes or additions that could be indicative of fraud. An addition of a new address, a new account or new inquiries will likely set off monitoring alerts. Most of the alerts are either text message or email based. And, most of the better (and more expensive) credit monitoring services will monitor all three of your credit reports daily.

Credit Freezes

Credit freezing is a service offered by the credit reporting agencies and other companies that gives consumers the ability to lock out access to their credit reports. According to Scott Mitic, CEO and Founder of TrustedID, a consumer identity theft protection company, “Today any consumer in the United States can freeze their credit reports but there is variance from state to state on what you will pay to do so.”

Most credit experts believe the credit freeze is the best way to protect your credit reports from unauthorized access, primarily because it’s proactive rather than reactive  Only lenders with whom you have an existing relationship will have access to your credit reports. Lenders with whom you have no relationship will not be able to access your credit reports unless you have thawed them in advance. “A credit freeze is the Fort Knox of credit protection” according to Mitic. “There simply is no stronger way to protect yourself from the most dangerous forms of identity theft.”

The freezes are available in pretty much every state, thanks to state laws.  And, in many states the freezes are free for consumers who have been victims of identity theft.  To see if you live in a state that mandates free credit freezes for identity theft victims go here.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.

Photo: iStockphoto

It seems we can’t go more than a few weeks without our personal information being compromised by a massive data breach.  Last week it was the New York Yankees.  The week before it was the Sony PlayStation network.  And a few weeks before Sony it was Epsilon.  And just to make sure I don’t leave anyone out…now it looks like LastPass (online storage for your passwords) may have been the target of hackers. Each of these high profile data breaches has one thing in common…we had nothing to do with it.

If you believe the marketing ads we’re all just one step away from living in our parent’s basement, working at fast food restaurants, having our credit reports and scores trashed, and even being falsely arrested.  The FTC’s top consumer complaint in 2010 (for the 11^th straight year) was identity theft.  The marketing push seems to be parallel to the statistics but really, other than buying a bunch of credit monitoring services what are we supposed to do?

We’ve all heard the tired advice from experts (including this one) about how to avoid being an identity theft victim.  Shred your sensitive documents instead of just throwing them away.  Check your credit reports several times each year.  And, beware of Phishing, Vishing, Spear Phising, Skimming, RFID Hacking, dumpster diving and mail theft. You need a separate dictionary just to understand all of the ways these dirt bags are trying to scam you.

Other than shredding sensitive documents, making sure your mail doesn’t sit in your box too long, checking your credit reports from time to time, making sure your passwords are complex, and using a little advanced common sense (No, you don’t have a friend stuck in the UK looking for $2,000 to come home) we should be pretty safe from identity thieves.  But what if mega-companies who are entrusted with our sensitive information are not good stewards of the data?  Seriously, what’s more likely to happen…someone stealing old checkbook registers from your garbage or Sony being hacked?

It’s a solution-less problem because you can’t remove yourself from “the system.”  Think about how many places maintain your sensitive information.  Frequent flyer accounts, your tax prep services, your CPA, hotel chains, retailers, banks, brokerage firms, newspapers, employers, credit card issuers, home owner’s associations, insurance companies, airline clubs, domain registrars, public utilities, Facebook, Twitter, Linkedin, mySpace, email service providers…our data is everywhere.  Look at the list of bookmarks in your browser.  How many of those places have your information?  Almost all of them, I bet?

We certainly can’t exit the system and we certainly can’t expect companies to be impenetrable.  What we can do is to be a little less lazy about our login credentials, for example.  We tend to use the same login credentials for multiple online accounts. That makes the Sony breach problematic because login credentials might have been stolen.

And it’s not just credit card numbers or login credentials that put us at risk.  Take the Epsilon breach for example.  You’ve probably never heard of Epsilon but they manage email campaigns for scores of companies to the tune of about 60 million email addresses.  And I’m not talking about John’s Garage.  I’m talking about Chase, TiVo, Best Buy, Disney, Marriott, Hilton, Citi, Ameriprise and dozens of other widely recognized companies.

The hackers now have email addresses for millions of consumers, which makes Spear Phising (email fraud perpetrated on a homogenous group) a possibility.  To make matters worse, the people who hacked the Epsilon database are criminals, but they’re not stupid criminals.  They know the heat is on and the value on the data black market is less than what it will be in 2 years when everyone has forgotten about Epsilon.

The bottom line is we’re vulnerable, both in the electronic and physical worlds.  And regardless of how much time we spend running documents through shredders there will always be exposure.  I’m afraid the best we can do is to make ourselves a little less attractive than our neighbors by being smarter and more careful than they are.

Gotta run, I just got an email from TiVo telling me my service is going to get cut off unless I confirm my credit card information at their site.  It’s a good thing they sent me a link in their email.  Now, where’s my wallet?

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit.

(iStockphoto)

I recently renewed my gym membership, and next to the line requesting my birth date was one requesting my Social Security number. I found the question a little odd, and I hesitated, wondering, How could they possibly need that? Then I remembered all the other times I’d filled out forms that requested my SSN—forms for the library, the electric company, and even my video store membership—and that most of those times, I’d willingly handed over the information without batting an eye.

Some discussions of informational privacy may seem silly and overblown (like discussions of exactly who gets to see those Facebook pictures you posted purposely), but protecting the integrity of your Social Security number is actually very important. Identity theft is still a billion-dollar business, and all it takes for you to spend the next several years untangling the tatters of your financial life is for those precious nine digits to fall into the wrong hands.

Some businesses and entities have a legitimate, government-mandated interest in knowing and recording your Social Security number. Some don’t. Before you divulge it on even one more form, learn the difference.

The Accidental Authenticator

The funny thing is that the SSN was never intended to be used the way we use it today. When the first numbers were given out in 1936, they were supposed to merely denote a retirement account number, not meant to be de facto personal identifiers or authenticators that would follow us through our lives and record each little bit of our personal, financial, residential, and transactional history.

Government agencies and businesses began using the SSN more broadly when records became computerized—it was a lot easier to differentiate between people across multiple platforms by using this unique numeric code, instead of by relying on names. Since each person had already been assigned one unique number at birth, the Social Security number seemed like an ideal number to use.

These days, businesses request SSNs for a variety of reasons. Some want to run credit checks on their customers, some want to keep their records intact through customers’ address or name changes, and some simply want the number for use as that unique identifier. But while most businesses request the number only for legitimate purposes, some do make money by selling their customers’ information to marketers, and a list including Social Security numbers is much more valuable than a list of names alone.

Who Gets It

There are only a few entities to which you are legally obligated to provide your Social Security number.

* Certain government agencies (Department of Motor Vehicles, welfare, unemployment, Medicare, Medicaid, Internal Revenue Service)

* Employers

* Banks

* Financial services firms (brokerages, investment firms)

Because a SSN can also serve as your taxpayer identification number, any transaction that you report on your taxes—including employment documents, unemployment payments, or investment or inheritance paperwork—is required to include one. A SSN is also required to open a new bank account, because the PATRIOT Act requires banks to participate in customer identification programs to verify customers’ identities and prevent money laundering.

When a government entity demands your SSN, it’s required to provide a disclosure form stating why it needs the number and exactly what it plans on doing with the information. Privacy laws strictly control what these agencies can do with the information they collect. Just remember that many governmental forms request a Social Security number, but not all of them actually require it.

Who Doesn’t

* Doctors/health insurance plans (unless the patient is on Medicare/Medicaid)

* Schools (except in certain circumstances)

* Utility companies

* Credit card companies

* Libraries

* Miscellaneous businesses (gyms, libraries, etc.)

Many schools once used students’ SSNs as identification numbers. Although identity-theft concerns have prompted many to abandon the practice, most still request the number in order to streamline record keeping. Publicly funded colleges and universities can request students’ Social Security numbers only if they provide the students with the standard disclosure statement and the usual government protection applies to the information given. Private schools can request the numbers if they wish, but the government does not regulate what happens to the information.

Most of the other entities that request Social Security numbers are attempting to verify customers’ identities and make sure that they are creditworthy, but there’s no law requiring customers to comply. You don’t have to provide an SSN to see a doctor, to apply for health insurance, or to get utility service. You don’t even need an SSN to get a new credit card. However, although the customer is not required to disclose his or her number, the business isn’t required to do business with anyone who doesn’t. Privacy experts suggest trying to agree on an alternate means of identification, such as a driver’s license or passport. Some businesses may oblige, but they can also legally refuse to provide services to anyone who doesn’t comply with their informational demands.

Aside from the fact that you’re not required to divulge the number in every circumstance, experts recommend taking basic steps to safeguard your information, such as not giving out your Social Security number over the phone or online, and not carrying your Social Security card in your wallet. Any time a business asks you for your number, it should be able to explain to you exactly why it’s needed. If it can’t, simply refuse to provide your SSN, or ask for a manager to arrange an alternate means of identification. Giving out your social may seem like no big deal, but each time it’s revealed is one more chance that the number could be stolen or leaked. When in doubt, don’t give it out.

What’s Your Number? Protecting Your Social Security Info was provided by DivineCaroline.com.

My situation may be different from most. I suspect others will talk about debt and credit cards, but my financial planning wreck should be talked about too, because it’s very important. I’m now 28, and my financial troubles lasted six years.

When I was 19 I went away to college (not too far away). Of course as we all know, credit card companies stalk you so you can begin your journey of credit card debt. I started school in August and by December I had about six credit cards.

To make a long story short, my mother thought it was best for me to send my credit cards home. She thought that as I was about three hours away from home, having so many would make me use credit cards irresponsibly and spend them on friends and other nonsense. After listening to my mother, I sent my credit cards home and thought no more about it.

Let’s fast forward a bit.

When I went home on breaks and holidays I noticed my mother using a credit card. I knew she didn’t have one but at the same time it didn’t matter to me. I never thought for a second she was using my credit card — 6 years ago, identity theft wasn’t anything I’d heard about.

Not long after, I left my mother’s home and moved in with a friend. About 8 months later I started to receive phone calls and bills from collectors. Apparently while I was staying on campus, the credit card companies were sending my bills home; and I can only assume that my mother threw them out. (Later I learned that she had made some monthly payments on them).

Scared out of my pants, I called my mother. She basically told me three lines: “You’re young, this will be fixed in 7 years;” “Nothing is going to happen;” or “I will help you pay.”

I was the type to always respect my mother, and so I did just that. I never even considered going to the police, because I never thought it was an option. So when I did receive the bills, it was already too late to schedule payments because they were already well into collections. Back in 1998, at age 19, I was telling myself not to worry. Since I was in school and didn’t spend the money, I thought, the problem would erase itself. But we all know that wasn’t the case.

Crazy thing was, back in the late 90′s I watched a slew of older friends and family members disregard bills, not pay, and still get more credit cards. They would get repossessions but were still able to get cars. As a result, I just believed my mother: this would go away.

When I did finally decide to tell the collection people of my problem, though, of course they didn’t want to hear me. They wanted their money. Being young and scared of my mother, I did nothing but continue to ignore the bills.

Fast-forward again.

Two years into this I was scared to ask my mother to pay. Of course others around me had opinions, but I was raised to respect my mother to the fullest and so I never did anything but mention it to her in passing. I never truly addressed the issue.

For the next 4 years I had to learn the hard way. When I applied for credit cards, I didn’t get anything. When it was time to get an apartment, I couldn’t get anything.

As I matured and realized that I couldn’t live like this, and with only one way to prove that I was serious (in the eyes of the judge), I filed a police report and sued my mother. It was the hardest family and financial decision that I’ve had to make. I suffered a long and hard ordeal. I lost many of nights of sleep and buckets of tears because of the turmoil, and I had a hard time convincing judges and lawyers. At times I felt they treated me like I was the criminal.

In the end I had a great lawyer that dealt with a lot of the major credit card companies on my behalf, and I won a modest amount of money. Don’t get me wrong: The result wasn’t easy, and I would give all that money won back to have my identity when I was younger. The process has had its drawbacks on my personality, as well: I’ve become very fanatic about money, pay every bill before it is due, and am very scared of debt (even good debt).

I guess the moral of the story is that identity theft isn’t necessarily from strangers — it can be your very own blood.

Mint’s Take Away:

Identity theft is never an easy issue to deal with and can especially be more difficult when the perpetrator is someone you know.

According to the FTC, about 9 percent of all identity theft are committed by family member or relative. That means that 1 out of 11 cases of identity theft is an inside-the-family job.

Here are some resources for those facing the same situation as the story submitter above:

• When You Personally Know the Identity Thief
• Identity Theft and Children

Train Wreck Tuesdays are a weekly post of horrible financial mistakes. They are posted anonymously. Submit your story; if you’re selected, you get a free personal finance book. The best comment gets the same prize!