Do Identity Theft Protection Programs Really Work?

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Identity theft. Everyone's scared of it, but no one knows what to do about it.

If you have recently become concerned about your own identity, you may be on the hunt for an identity theft protection program. Similar to a credit monitoring program, this service looks over your credit report on a daily, weekly, monthly, or even hourly basis to detect suspicious activity when it happens. At that point, you can choose to stop the transactions (assuming they're not yours) and protect yourself from identity theft.

Some of these programs will provide financial protection in the event of identity theft, and others simply alert you when a problem arises. As helpful as this may seem, the fact is that programs like this aren't all they're cracked up to be. Before you spend the money on one, you need to get the facts. No worries – we're to help you out.

Yes, this is a real problem.

There is no denying that ID theft is a big issue in America, affecting millions of households every year. The data from the chart here shows the progression of identity theft reports in the country from 2005 to 2010. Even with a slight decline in 2010, the staggering 8+ million reports are enough to send any credit card holder into a panic. That's why so many people are turning to identity theft protection for comfort. That's the missing piece they need to feel secure when they use their cards.

All we want to know is whether or not you could find the same comfort somewhere else.

Caption: Data courtesy of the U.S. Department of Justice.

ID theft protection is not the same as prevention.

You might sign up for a credit monitoring program because you think it will prevent your identity from getting stolen. Sadly, that can never be the case. There is no such thing as "identity theft prevention," other than proactive steps you can take on your own. Any program you sign up for is going to watch your credit closely, but it's not going to act as a bodyguard against thieves. It will certainly alert you when you need to take action, but that's all it can do. This fact alone may have you looking from a different perspective.

Your alerts aren't always accurate.

High-quality ID theft programs will monitor your credit in real-time, or as close to real-time as they can get. However, there are a lot of services on the market that watch your credit from weeks or even months ago. What good does that do you? In order to stop identity theft from getting out of hand, you have to catch it right from the start. Unfortunately, there's no guaranteeing that you're getting the kind of protection.

Some credit cards already have theft protection.

A little known fact is that most credit card companies provide ID theft protection for all of the cards they offer. Some of them will sell this separately under the term "ID theft insurance," but many of them work it in as part of their services. Visa's Security Program and Discover's Fraud Protection are prime examples of this, and you can access them with any Visa or Discover card. These programs will either freeze your account if suspicious activity occurs, or it will provide a certain amount of reimbursement for unauthorized charges. Either way, you will not be held responsible if someone steals your credit card.

Of course, there's a catch. If the identity thief somehow finds your personal identification number (PIN), you may have to pay for the damages that follow. This will only happen if the person runs the card as debit, or if he or she withdraws money from an ATM. The reason credit card companies do this is because they expect you to protect your PIN. No one else should know that because it's in your head. If something happens because you told someone else your PIN, they are no longer willing to help you out.

Furthermore, there may be a limit to the amount of credit reimbursement you get after identity theft. Your credit card may have a support limit of $2,000, so anything spent after that will be considered your fault. Hopefully you will notice the charges before that happens, but if not, you could owe a lot of money for no reason.

How do the costs compare?

Even with the minor downsides to built-in identity theft protection, the monthly savings are worth it. The average credit monitoring program will cost anywhere from $10 to $20 a month, which adds up to hundreds of dollars a year. Sure, it's possible to have annual fees that are that high, but most credit cards carry no annual fees at all.

To put matters into perspective, we compared the annual costs of several credit cards in comparison to the three most popular identity theft protection programs on the internet: Identity Guard, Trusted ID, and Protect My ID. All of the cards have ID theft programs built-in. They include: Citi Simplicity, Capital One Venture Rewards Visa, Discover It, and Escape by Discover.

Caption: There is a free trial program with all of the ID theft programs used for this comparison. We eliminated those to get a true idea of what a year of protection would cost.

As you can see in our chart, the cost of an actual identity theft protection program is significantly more than the cost of a card with protection included.

The real secret to identity theft protection…

Since there is no program in the world that can prevent identity theft, you have to take it upon yourself to do the hard work. Once you know how to manage your accounts and what to look for in them, you won't have to worry as much about paying for a monitoring program. Here are some quick tips to help you keep your identity safe:

  • Check your accounts often. You need to know what charges are coming through at all times so you can alert the credit card company about unauthorized ones.
  • Do not give out your PIN. It doesn't matter who needs to use your card – you need to keep your PIN to yourself.
  • Sign the back. This will take two seconds of your time, and it will prove to the authorities that the card is yours, should it be found after it is stolen.
  • Know what you're buying. Keep a ledger of your credit card activity like you would for a bank account, and then you'll be able to recognize suspicious actions the moment they show up.

You don't have to spend hundreds of dollars a year on identity theft protection. You have all the protection you need between your actions and your credit card companies. Make sure to check for this protection before signing up for a card, and you should not have anything to fear.

*The content in this article is accurate at the publishing date, and may be subject to changes per the card issuer.

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