Dear Friends,
Here's something that should make the hair on the back of your neck stand up:

The fact is, we don't know how many people have access to our confidential information.

That statement comes from attorney Steve Weisman, author of "50 Ways to Protect Your Identity and Your Credit."

Identity theft involves someone else using your personal information to commit fraud and other crimes in your name.

An in-depth survey conducted on behalf of the Federal Trade Commission found that nearly 10 million Americans were victimized by ID theft in 2003 — almost 5 percent of the population. ID theft tops the list of frauds reported to the FTC last year, with complaints up 15 percent. This could mean the crime itself is becoming more common or that people are getting more diligent about reporting it- or both.

Identity fraud costs consumers roughly $5 billion dollars each year. Businesses eat another $48 billion.

While two-thirds of ID theft victims had one or more credit cards misused, about 20 percent said the fraud involved their bank accounts. Nearly one in five reported that the thief used their personal information to open other accounts in their name, such as loans, cell phone service, and other credit cards.

But money doesn't tell the whole story. Fifteen percent of all victims had their identities used in non-financial ways — the thief got a drivers license, a new Social Security card, even a job — using the stolen information.

In thousands of cases serious crimes were committed. When caught, the thief provided phony identification based on the victim's stolen identity. As a result, according to Weisman, “Innocent people have been repeatedly arrested — even jailed — for crimes they didn't commit.” He says it's becoming such a problem that some states, such as Virginia, now issue a “passport” that ID theft victims can carry “to prove to the police that they weren’t the person who committed the crime.”

Big cases, such as last months’ announcement by data broker ChoicePoint (search ) that thieves had obtained sensitive information on as many as 400,000 people grab the headlines. But the insidious part about identity fraud is how it affects people on an individual basis.

Five years ago Linda R. received a phone call from an FBI agent telling her that the Visa card she shared with her husband, Scott, was being hit with $1,000 wire transfers. Linda and her husband were shocked. Their cards were not missing. Nor was any other document such as a driver license or Social Security card. What was missing was their monthly credit card bill. With both of them working and taking care of two small boys, they hadn't noticed that the bill had stopped coming in the mail. That's because the thieves had changed the address on the card — twice.

“It was scary when we realized how much they knew about us,” says Linda, who lives in New England. “It felt like a huge invasion of privacy. They never bought anything using our credit card, they just wanted cash. They had sent up bank accounts in our names in Texas and were having the money deposited there.”

It took months to try to unravel the mess it made and Linda admits she still “feels creepy” when she thinks about it. To this day she has no idea how the thieves obtained Scott’s Social Security number, what else they knew about her family, or if the thieves were even caught. “That’s the worse part. We never got closure.”

“The problem with identity theft,” says Weisman, “Is it’s very easy to do.” While computers get a lot of the blame, the fact is that most methods of obtaining this information are decidedly low-tech. And in a way, that makes it more dangerous because your guard is down.

Weisman himself had his credit card stolen from a locker at his health club. In fact, stealing the actual information by grabbing a wallet, a credit card bill from the mailbox, or going through the victim’s trash looking for account numbers — an activity known as “dumpster diving” — is the way one out of four crooks commonly get his hands on it.

In the case of ChoicePoint, which maintains roughly 19 billion records, for more than a year thieves apparently obtained the data using a simple strategy: they set up fake businesses and said they were checking out the credit references of potential customers. They didn’t have to “hack” a thing.

One of the biggest mistakes you can make is to assume the thief is a stranger. 25 percent of the cases involve people known to the victim — a co-worker, the baby-sitter, the housekeeper, the bank teller. One out of ten times it’s a relative.

According to Weisman, one popular approach is for an older relative to use the identity of a young family member. “The child doesn’t find out about it until years later when she’s turned down for a student loan.”

Then there’s the case of perverted brotherly love: while one was off in Iraq fighting, the stay-at-home sibling used his brother’s ID to steal from his bank accounts and run up credit using his name.

If you’ve not yet been a victim of identity theft, the Federal Trade Commission says there are ways to reduce your chances:

1. Your Social Security number is the holy grail for identity thieves. Armed with that information they can access a treasure trove of details about your life. Don’t carry your Social Security card in your wallet and be extremely careful about giving out the number.

(Please don’t ask me why so many health insurance companies and unions insist upon using your Social Security number as your member I.D. It’s stupid and dangerous.)

2. Never divulge personal information over the phone to someone you haven’t called.

3. Try to carry just two credit cards and make sure you have the numbers written down in a safe place in case they’re lost. If you limit the number of credit cards in your wallet, you limit the amount of damage a thief can do.

4. If, like most people, you still use the postal service to pay your bills, don’t leave them in your mailbox at the end of your driveway and flip up the red flag. You’re just alerting an ID thief that there is potentially important information inside. Betsy Broder, the attorney who oversees the FTC’s identity theft program, says she never puts her bills anywhere but “in that blue box on the corner.” In other words, deposit your payments directly into a U.S. Postal Service box.

5. Get a shredder. Use it on any documents you’re discarding before you toss them into the trash. This includes old tax returns, monthly credit card statements, bank statements, checks, pay stubs, letters from the government, and medical bills that have accounts such as your Social Security number on them. In short, any piece of paper you no longer need that contains personal information.

6. Save a tree (potentially a forest) and stop those pre-approved credit card and home equity applications you get in the mail. They’re another gold mine for the ID thief.

Contact the Consumer Data Industry Association either via their toll-free number (888-567-8688) or by visiting . That’s what I did. The online approach allows you to stop these solicitations for two years or permanently . If you change your mind, you can opt back in at any time.

One piece of advice: You can either submit your request to be taken off these lists for pre-approved credit accounts online — which costs $5.00 — or print the form and mail it in — which costs 37 cents.

The above website also has links to the Direct Marketing Association (search). On this Web site you can register to be removed from other types of mail and telephone solicitations for a maximum of 5 years.

7. Check your credit report at least once a year. The Fair and Accurate Credit Transactions Act (FACT) signed into law late last year gives you the right to request an annual copy of your credit report for free . To prevent the three credit reporting agencies from being overwhelmed, this is being phased in gradually starting with folks who live on the west coast. By Sept. 1, it will be nationwide.

Of course, if you are turned down for credit for any reason, you’re entitled to a copy of your report no matter where you live.

But even if you have to pay for a copy of your credit report before then it can pay off. For instance, if you are planning to move or buy a house or a car in the next six months, it’s critical that you clear up any black marks on your credit history before you apply for a mortgage or try to get the utilities turned on.

By the way, beware of pop-up ads and internet-based companies that offer to get you a “free” copy of your credit report. Read the fine print. You could be signing up for other services you don’t need or it could be a way to lure you into giving out your personal information.

8. Don’t leave bills, brokerage statements, and other papers lying around within easy reach of anyone visiting your home.

9. Don’t respond to emails asking you for sensitive information. Government agencies and legitimate businesses don’t operate this way. Financial companies such as Citigroup have been the target of spammers who send “urgent!” emails instructing people to click on an imbedded internet link. When they do, they find themselves at an official-looking site, complete with the company’s logo, that instructs them to fill out the “secure” questionnaire. This technique is known as “phishing.” Don’t take the bait.

For more ways to protect yourself from identity theft, check out the FTC’s Web site:

As a special favor to “Your $ Matters” readers, the publisher of "50 Ways to Protect Your Identity and Your Credit" is making 50 copies available. Send me a short(!) email explaining why you need this book. We’ll publish the winners in an upcoming column.

Next week: what to do if you discover you are the victim of identity theft and why it’s so important that you report it.

Watch that wallet!


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The views expressed in this article are those of Ms. Buckner or the individual commentator. You should consult your own financial adviser for advice regarding your particular financial circumstances. This article is for information only and is not an offer of the sale of any mutual fund or other investment.