What are Credit Bureau Fraud Alerts?

As identity theft continues to plague millions of consumers and businesses every year, the search for a quick fix continues. Most recently, credit bureau fraud alerts have been identified as a powerful and proactive tool in fighting identity theft. But are fraud alerts effective when used for this purpose? In the white paper "Fraud Alerts - the New Wave in Identity Theft Protection?" by Intersections Inc., this question and others about credit bureau fraud alerts are explored. Key excerpts can be found below.

Summary

Fraud alerts, in combination with other tools, can be effective when used judiciously after a consumer has become the victim of an identity theft. Placing a fraud alert can help in preventing additional theft. But as a prevention tool, fraud alerts lack the essential components of monitoring – of both credit and non-credit related personal information.

Fraud Alerts – What are they? How do they work?

A fraud alert is a warning flag placed on an individual’s credit file at each of the three national credit reporting agencies (CRA) Equifax®, Experian®, and TransUnion®.  Consumers may place an initial fraud alert on their files at no cost.

Once placed, a fraud alert will remain active for 90 days. As required by the Fair and Accurate Credit Transactions Act of 2003 (FACTA), a fraud alert requires potential creditors to use “reasonable policies and procedures” to verify a person’s identity prior to issuing credit.  Fraud alerts may be extended in increments of 90 days, as well as removed, by writing directly to the CRAs.

Fraud Alerts – When and Why to Use Them

According to the Federal Trade Commission (FTC), a fraud alert should be used as a defensive action when someone has either already become a victim of identity theft, or has logical reason to believe they will become a victim (if, for example, a wallet has been lost or stolen). Then, if a thief attempts to open new accounts that require a credit check, creditors are supposed to verify the applicant’s identity prior to issuing credit.

Fraud Alerts:  A Helpful but Incomplete Solution

While a potentially effective device in preventing some new credit-related accounts from being opened, fraud alerts do not address many of the risks that could give rise to identity fraud.  A consumer who believes that he or she is safe merely because of a fraud alert may be lulled into a false sense of security.  Services that charge a consumer specifically to place fraud alerts may be trading on the misperception that a fraud alert is a complete remedy.

• Fraud alerts do not require a consistent response by creditors.
• Fraud alerts do not protect against existing account takeover.
• Fraud alerts do not prevent the opening of new credit accounts that can be issued without the use of credit reports.
• Fraud alerts do not protect non-credit related personal information which may be used to commit identity fraud.
• Fraud alerts do not protect checking accounts, debit cards, and the potential theft associated with those.
• Over usage could render fraud alerts ineffective.
• Placing alerts takes time.
• Valid credit offers may be denied.