ID Fraud Protection Loophole to get protected for free

High profile breaches of Sony, Marks & Spencer and Play.com, and sensationalist headlines about them, have stoked ID fraud fear up to fever pitch.

Yet is there really anything to be afraid of? And if so what can you do to protect yourself for free? This Q&A briefly explains it all.

What is ID Fraud?

It's when a criminal steals your identity and uses it to run up bills, apply for debts or services leaving you to foot the bill.

It can be as simple as going through your rubbish bags, finding your old letters and bank statements and then applying for financial products using your details.

Actually you're rarely liable for cash fraudulently spent, providing you can prove it wasn't you and that you haven't been negligent.

Why is it a problem?

It's a nightmare to sort out, and can leave you out of pocket. Plus ID theft can lead to unpleasant encounters with debt collectors, court actions and problems getting a mortgage; usually stressful and time consuming.

So, while it's important to be concerned, the same sensible precautions as normal are what counts. Crucially, the banks cover the cost of ID fraud as long as your negligence didn't let the fraudsters get the PIN; though in this case it's likely after they've paid out, they'd ask the government to reimburse it.

How do I protect myself?

There are a number of preventative measures:

• Keep your PIN safe.
  
  PINs and passwords for debit and credit cards are the easiest way to access accounts. Always keep yours safe, and try not to use codes derived from kids' or relatives' birthdays or names, as fraudsters could get that information and work out your PIN.

• Get a shredder.
  
  Everybody should have a Cross Cut Shredder (these usually cost around £15) for destroying important documents, meaning no-one can root through your bins to find personal data, and use it in financial scams (read What is Phishing? article).
  
  This should definitely include all documents from financial institutions as a bare minimum; yet any others with names and addresses on should be considered for shredding too.

• Use free anti-virus software.
  
  Kitting out your computer with up to date anti-virus software is a must, as you can do it for free; read Free Anti-Virus Software article.

• Always check bank statements.
  
  Regular checking of your bank statements is always good practice; if you spot something that looks a tad dodgy, immediately contact your bank or building society. Also if your bank or credit card statements fail to arrive, contact the company right away.

• Regularly check your credit reference files.
  
  If someone is making false applications for credit in your name it will appear on your credit reference files. You should check these at least once a year (or immediately if you suspect fraud). See the Your Credit Rating: Check for free and improve it article.

The prime worry is that criminals take your identity details and use it along with other information to build a new profile, applying for new products in your name, which will go on to your records and destroy your credit history. Yet as long as we take sensible precautions ourselves, the risks are limited.

How does ID fraud work?

There are two ways that fraudsters normally operate:

Phishing. Getting you to give up your details

First, they try to get your PIN by what is known as 'phishing'. This means they set up websites, or directly contact you by post or phone, claiming (and looking) like they are genuinely from your bank, and they ask you to enter a PIN.

If it works, they'll have all they need to access your money, and theft is easy.

So there's a very important golden rule. No matter whether it's a traditional letter, e-mail or phone calls:

"NEVER EVER EVER EVER give anyone your PIN.
Don't do it, don't think about it, always assume it's a fake."

Sadly, the banks are culpable here; they do sometimes call up and request some personal details or passcodes; and this doesn't help matters. Yet we have to protect ourselves and not rely on the banks.

Even if you think the contact is genuine, while it's a hassle, just don't give them an answer. Instead use what you already have stored as their correct phone number, website address or postal address and contact it back. This way you can be sure you're dealing with the correct people.

Fraudsters don't mind where they get your personal details, it's all the same. Beware when using personal details as passwords (e.g. date of birth, mother's maiden name) for Facebook or other social-networking websites; these are generally open to all and could put you at risk.

ID Fraud.Using your identity to get credit

Second, fraudsters may apply for products using your identity. To spot this, regularly check your credit reference files, which contain all data passed on by banks about how you do your banking.

If someone is defrauding your identity, this is where you'll spot the products listed that you never applied for.

You should check your credit file at least once a year, read the Credit Rating article to find out how. There is also a totally free way to get email alerts everytime your credit file changes; read the Get help for free section.

Unfortunately, having done a poll on the site, many people don't take this precaution. This is leaving yourself hostage to fortune. We have to learn to protect ourselves; checking credit reference files is the way.

The same applies if you receive goods or services you haven't bought, or are notified you've been accepted for products that you didn't apply for.

If you suspect you've been a victim of fraud report it to ActionFraud (Tel 0300 123 2040), the UK's national fraud reporting centre, who may also be able to offer help and advice on what to do.

Do I need ID fraud insurance?

No no no no NO!

An entire industry has built up selling us the fear of ID fraud and then trying to sell us insurance against it! In some ways these companies are almost, although not quite, as bad as the fraudsters themselves; indeed, many don't mention that ID theft insurance only covers the cost of salvaging the mess, not the money lost through the fraud.

Most non-high net worth individuals don't need to pay for these expensive insurance policies; while ID fraud is a hassle, you're covered by the banks unless you're culpable.

ID Fraud insurance should be differentiated from payment protection insurance. This is commonly sold with credit cards - the idea is it'll make some payments for you, usually for a year, if you are unable to (eg, if you lose your job).

There have been a myriad of cases where PPI has been missold eg, borrowers didn't realise they were signing up for it, or it was totally unsuitable for them, and some big lenders have been fined.

The protection isn't always bad, though policies sold with cards are often overpriced (you pay a monthly amount depending on the size of your balance). If you want it, compare the lender's cover with standalone providers such as Paymentcare or Best Insurance.

Always be vigilant to check you aren't getting more than you bargained for when you fill in the application, then check your statement each month to check you aren't inadvertently paying for extras if you didn't ask for them.

Is there a way to protect myself for free?

Yes, there's a great loophole available. If you have any Capital One* credit card, or apply for a new one, you'll get free subscription to its ID Fraud Alert service. Importantly this applies whether the fraud's on its card or any other - see Which card's right for you.

Even better, you never actually need to use the card to get the protection. So there's nothing stopping you getting one of these cards, even if you won't use it, just for the protection. You'll get the following:

• Two free credit reports a year.
  
  Your credit reference file contains an array of important details about you; financial details, such as products you've applied for, addresses and electoral roll information. Checking it regularly for mistakes is important; these could impair your ability to get new credit, or may suggest ID fraud (read Your Credit Rating article).
  
  You can get a basic statutory report for £2 by writing to one of the credit reference agencies; plus any Capital One cardholders are entitled to two more-detailed reports from Equifax each year, totally free.

• E-mail alerts when your credit file changes.
  
  Capital One cardholders will get an email any time there is a key change on their Equifax credit file. This includes any applications for new credit, meaning if you get an e-mail and haven't applied for the product, there's a chance you are being defrauded.

• Assistance to put things right if you've been defrauded.
  
  If all the prevention hasn't worked and you've become a victim, Capital One provide specialist expert advice via an identity fraud helpline seven days a week. This helpline promises to provide one-on-one help with cancelling any compromised accounts, clearing your name, repairing your damaged credit status and help with filing police reports.

  If you use this helpline please report how useful it was to you. I doubt it will actually solve the problem, but at a stressful time, to have one-on-one help and special documentation would be very welcome.

Similarly, Barclaycard's card range offer a free Fraud Protection Service, (not the Identity Protection Alert or Card Protection Plan which are not free). This gives support and advice if you have one of its cards (again on any card you own), but you'll have to do most of the legwork here. It doesn't include fraud alerts or free credit reports but is still a useful freebie.

Unlike a lot of other providers, MBNA provides cover for up to £5,000 for fraudulent use before you notify them. However, this only applies if you notify them within 24 hours of realising your cards are missing. So make sure as soon as you realise to let them know.

Which card shall I get?

If you're already a Capital One or Barclaycard cardholder, ring up and confirm you've got the ID fraud cover (especially if you've had the card a while). If you don't have either, then apply for a new Capital One card (as this has the best features). Which specific card depends on your circumstances; you may as well get one which provides other benefits too.

Simply after the ID fraud help?

If you don't plan to use the card and just want it for ID fraud help, the easiest card to get is Capital One's Classic Visa* . The rates are horrendous (34.9% representative APR - Official APR Example), but there should be very few problems getting accepted.

This card has no annual fee and you don't ever need to actually use it to get the protection so you could apply and just pop-it in a drawer and get the protection without it ever costing you a penny. If you do use it - and try not to - always repay in full or the cost could be huge.

Pays cashback as well but charges £30 annual fee

The World Mastercard* pays 1% back on everything you spend (£1 per £100). It charges a £30 annual fee, but pays you a £10 bonus each year. You've got to spend more than £4,000 a year on this card to get a decent cashback rate.

Make sure you pay it off in full every month or else it has a massive 19.9% representative APR (Official APR Example). If your just looking for a cashback card find the best offers in the Cashback Cards guide.

Free ID fraud assistance for Direct Line home insurance customers

Those with combined buildings and contents insurance arranged with Direct Line* Home Insurance Plus automatically receive free Identity Fraud Assistance and help to aviod getting caught out..

Yet don't let this persuade you to go with Direct Line, only do it if it's the best deal anyway. Find out by using the four step home insurance cost-cutting guide.

What's the impact on my credit score?

If you're only getting the card for the ID protection, it's important to consider the impact of applying for a further card on your credit score (read a full article about How Credit Scoring Works).

The impact is usually negligible. The real thing to worry about is applying for this as well as lots of other cards in a short space of time. This is more important than the absolute number of cards although, if you usually have a good credit score, there is no need to be unduly scared.

While there's no limit on card numbers, it's not a bad way to think about it. Anecdotally most people who've never defaulted don't have problems until they've at least ten cards.

A good rule of thumb is to ask yourself when applying for a card,: "If I'm only going to be allowed a limited number of credit cards, is what I'm applying for important enough to 'use a card up for'?"

Help keep this offer open

The one worry I have by writing this is that these card companies will find themselves with a lot of inactive customers and put a minimum spend on in future. To help avoid that, why not spend on the card a couple of times a year, always paying it off in full so there's no interest and it looks like the card is active.

Too late, I think my ID has been stolen.

To get instant help, if you think you've fallen victim, Experian's* CreditExpert monitoring includes access to an ID fraud protection helpline; while this costs £7.99 a month, it offers a free 30 day trial. So if you need it, simply sign up to the service, use the ID fraud helpline and then cancel the service before the 30 days is up. See the free credit ratings article for more info.

If you've noticed unusual account activity and genuinely suspect someone is using your identity to apply for new products, then contact Fraud Prevention Service CIFAS, and ask them to put a 'Protective Registration' on your credit reference file. This costs £20, and will alert all lenders who see it to carry out further checks before approving credit applications.

However, don't use this lightly. Getting Protective Registration on your files will slow up any credit searches, and possibly mean you don't get approved for things you need, from credit cards to mobile phone contracts.