3 Ways to Reduce Your Risk of Identity Theft

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As technology evolves and thieves get more and more sophisticated, identity theft is becoming more of a problem for average Americans. Who knows what major retailer will suffer the next major data breach, or what new methods of identity theft will be developed?

It's more important than ever to keep your identity safe, so here are five tips from our experts that could help you do just that.

Matt Frankel

If you have reason to believe that you could be a target of identity theft, or if you simply want to be proactive about protecting your identity, there are two good options available to you: fraud alerts and credit freezes.

A fraud alert is completely free, and you can set one up by contacting any one of the major credit bureaus ( Equifax , Experian, or TransUnion). The bureau you contact to set up the fraud alert is then required to contact the other two in certain situations.

Once a fraud alert is in place, creditors must take extra steps to verify your identity before opening any new credit accounts in your name. They may contact you by phone and/or require more identifying information than they normally would.

If you really want to protect yourself, you can freeze your credit . You need to do this individually with each credit bureau, and unlike a fraud alert, it's not free (it's usually $5-$10 per bureau). However, the credit freeze restricts access to your credit report, making it next to impossible to open a new account in your name.

You can cancel a fraud alert or credit freeze whenever you'd like, so these are valuable tools that you can use to protect your good credit from thieves while still allowing you to apply for credit when you need it.

Dan Dzombak

To reduce your chances of being an identity-theft victim, you should also use different passwords for everything and use a program to monitor your financial transactions.

With so much hacking going on these days, it's more important than ever to have different passwords for all your accounts. That way, if one account is compromised, you lessen the chances that your others will be. To keep track of all your passwords, use a managing service such as LastPass, Dashlane, or Sticky Password. Or you can create your own password algorithm , which sounds complicated but is essentially a set of rules specific to your knowledge.

Second, you can monitor your financial accounts with services such as BillGuard -- a free service for your credit and debit cards that uses crowdsourced data to create the most advanced fraud-monitoring system, which it then sells to credit card companies. Another option, targeted toward the elderly and their caregivers, is True Link Financial, though it does cost $10 a month. This service specializes in fraud protection, which is a huge financial problem for seniors and their loved ones.

Dan Caplinger

One rapidly spreading method of identity theft involves stealing someone's Social Security number and then filing a fraudulent tax return. The thief claims their victim's tax refund and then arranges to have the refund either direct-deposited to a transitory bank account or has a check sent to a safe address. You won't even know anything has gone wrong until you try to file your return and get a message that says that the IRS has already received a return in your name.

The IRS is taking steps to make identity theft a thing of the past: Its own detection system spotted 14.6 million suspicious returns between 2011 and 2013 and potentially stopped more than $50 billion in fraudulent activity. Further, the IRS provides identity protection personal identification numbers, or IP PINs, so that victims of identity theft can prove that they're the people who are actually supposed to be filing the returns. More than 1 million taxpayers have joined the program, and as it expands, the likelihood increases that the IRS will simply allow anyone to participate in the program, rather than limiting its use.

The best protection is to safeguard your Social Security number to the greatest extent possible. Yet it's still useful to have a backup from the IRS if it turns out to be needed.

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The article 3 Ways to Reduce Your Risk of Identity Theft originally appeared on

Dan Caplinger has no position in any stocks mentioned. Dan Dzombak has no position in any stocks mentioned. Matthew Frankel has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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