Are Fraud Alerts by Themselves a Good Identity Theft Prevention Tool?

One strategy for protecting your identity is issuing fraud alerts on your credit reports. Is this a good strategy? Well let’s first talk about how fraud alerts work. In 2003, the Fair Credit Reporting Act was updated with the signing of the Fair and Accurate Credit Transaction Act into law.

The FACT Act established three methods of protection for a consumer to immediately protect themselves from identity theft. The law reads that if you know or suspect that you are a victim of identity theft, then you can place a fraud alert on your credit file. A fraud alert is a red flag for a creditor when they check your credit file for information.

If someone is attempting to open up a credit account in your name, the fraud alert would tell the creditor that there is a high risk of identity theft. As a result, the creditor is instructed to call the consumer and verify identity before issuing credit. A consumer would have to reissue the fraud alert every 90 days.

If you can provide proof that you are a victim of identity theft, you can extend that fraud alert up to seven years.

So, is this an effective way to protect your identity? Reports would suggest that there are times that fraud alerts do not work. I have seen reports that place the percentage of failure between 10 and 25% of the time. It appears that creditors don’t always check and verify the identity of the person opening the account.

So what about the companies that issue fraud alerts on your behalf? Is this effective? Well, it has been documented that these fraud alerts don’t always work. So, that is a concern. If a fraud alert were to fail, you could be a victim of an identity theft for years and not even know it.

This is why credit monitoring makes the most sense. You still need to know that identity theft is taking place. There isn’t a failure rate with credit monitoring as long as the company you are using is accurately reporting to you changes on your credit report.

Fraud alerts by themselves are not the perfect identity theft tool. I wouldn’t want to use any strategy that had that high of a failure rate. If you are committed to preventing identity theft, just know that you will have to partner up with someone monthly to help you. Your money is best spent issuing fraud alerts on your own and having a subsequent company monitor your credit reports.

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