Do I Need to Freeze My Credit?

Q: My wife and I rarely apply for credit -- we have a Discover card for casual use and a Home Depot card for home-maintenance needs. Should we freeze our credit? And if we do, should we also pay for ID-theft protection on each card?

Freezing your credit can be a good idea if you are concerned about becoming a victim of identity theft and you apply for credit infrequently. A credit freeze prevents access to your report and score so that an ID thief cannot obtain credit in your name. It generally costs $10 to place a freeze at each of the three major credit bureaus (which adds up to $60 for a two-person household) and another $10 each time you unfreeze your account.

The good news is that the rate of identity fraud declined by 12% in 2007. Cleaning up in the wake of ID theft can be time-consuming -- the average victim spent 26 hours doing so last year -- but you are unlikely to suffer a monetary loss. Like most card issuers, Discover does not hold its customers liable for fraudulent charges.

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Discover sells ID-theft protection, which includes credit monitoring and insurance, for $13 a month. But, says Gail Hillebrand of Consumers Union, such single-purpose insurance is not worth the price. "If it cost $1 a month, it would be a different equation," she says.

Find out whether your homeowners policy includes ID-theft protection, or whether you can add it on. For example, Travelers charges its customers $25 a year for ID-theft coverage.

Your best bet is to focus on prevention, though. Review your monthly statement for unfamiliar charges, and shred all papers that contain personal information. Order a free copy of your credit report from each of the three bureaus at www.annualcreditreport.com, and stagger your requests so you can review a report every four months.

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