You will be the victim of identity theft. The question is no longer if, but when, and how much damage will be done.
One estimate suggests that as many as 10 million Americans are the victim of identity theft each year. In our increasingly electronic society, more of your personal information is floating around waiting to be taken by criminals intent on making their lives easier by turning yours upside-down.
You’ve likely heard many recommendations from your bank, credit card, law enforcement, or the media about steps you should take to protect your identity. All of the many recommendations such as shredding documents, getting a locking mail box and changing passwords are all sound.
The problem is not a lack of available recommendations, but rather too many. We’re all busy and pulled in different directions by things competing for our limited attention. So when something is too complicated or takes too long, it’s natural to take no action. For instance, when was the last time you got a copy of your credit report? Even though it’s free annually, it’s unlikely you taken this most basic precaution.
Trying to follow every identity theft precaution is as impossible as following all the weight loss techniques or the various personal finance strategies. It’s impossible to do it all so these things end up neglected until it’s too late.
Enter Pareto’s principle
Otherwise known as the 80/20 rule, the principle suggests that for most things in life, 80% of results come from only 20% of effort. This concept is commonly applied to business by suggesting that 80% of your income comes from only 20% of your customers.
There are many ways you may be the victim of identity theft and thus many ways to prevent it, but nothing will ever eliminate the risk. Since it’s impossible to guarantee 100% security, you’ll be most successful if you apply your effort into protecting against 80% of the risks.
During my law enforcement career, I investigated thousand’s of cases of identity theft. They ranged from very complicated organized criminal groups originating in the former Soviet Union to corporate espionage cases dealing with multi-million dollar companies.
I enjoyed these more “sophisticated” cases, but the day to day “routine” case were the bland cases of stolen credit cards. Identity theft statistics are not accurately tracked, but from my personal experience, 80% of identity theft cases begin when someone steals your credit card from your home or car and uses it for the days or weeks until it’s reported stolen. These cases are so common they may even account for as much as 90% of cases.
It’s obvious you shouldn’t store your wallet or purse in your parked car, but that’s not enough. Even if your card is never physically stolen, how do you prevent your restaurant waitress or doctor’s receptionist from stealing the account data with a magnetic card reader or simply writing the info down? Both of these happen daily. There are hundreds of ways your account information can be stolen so you’re safer assuming it will be, than trying to protect against every possible threat.
The first step is to eliminate your debit card and only use a credit card for purchases. Debit cards are the bank ATM cards you carry with the Visa or MasterCard logo allowing you to make purchases without a pin number. Find a bank that still issues an ATM only card that requires a pin number to make cash withdrawals.
There are two reasons to use a credit card instead of a debit card. First is that credit card fraud victims are usually not legally liable for more than $50 of fraudulent purchases and it’s rare banks even charge you that.
Secondly, and most important, if your credit card is stolen and maxed out, your personal bank account does not get drained. A criminal who steals your debit card can drain your bank account overnight. This is a nightmare to clean up. Not only will you be temporarily out of money, but any checks you’ve written will bounce resulting in more fees. Most banks will eventually take care of this, but it’s a nightmare that you won’t have with a credit card.
Not everyone wants to use a credit card. Some people don’t want credit cards because of the temptation to overspend and this is a real concern. Unless you have the discipline to pay off your entire balance each month, it’s not wise financial planning to you use a credit card for purchases and instead follow this idea.
Get two checking accounts, preferably at the same institution to make transferring money between accounts easier. The first account should be the one you use to secure the majority of your money and should only have an ATM card connected with it, not a debit card. The second account may have a debit card associated with it so you can make your purchases at the gas stations, online, or anywhere you want. The trick is to only keep a small amount of cash in the second account and as needed transfer money online from the large account into the smaller one to cover purchases.
If you follow one of these two ideas, when you are the victim of identity theft, the damage and clean-up time will be minimal. There is still a chance you’ll be attacked by other methods, but you have to decide how much time and effort is worth investing to reduce a relatively smaller risk. This is the Pareto principle applied to identity theft, now where else can apply it to get more of the things you enjoy and fewer of the things you dislike.
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