Identity theft is not just an unauthorized charge on a credit card anymore.
Identity theft, according to the Federal Trade Commission, “occurs when someone uses your personally identifying information, like your name, Social Security number or credit card number, without your permission, to commit fraud or other crimes.”
How your information is stolen, and how it is used, varies greatly. With stolen Social Security numbers, thieves are filing false medical claims, applying for mortgages and opening lines of credit for fictitious businesses. By adding fake fronts onto A.T.M.’s or gas pumps, they are collecting credit card numbers and PINs.
But while the trade commission estimates that nine million Americans are victims of some sort of identity theft each year, these extreme cases of identity fraud remain rare, luckily.
You may find that you will need only to close a compromised account or freeze your credit if errors appear. But recovering from the effects of an extreme case of identity theft can be incredibly messy and time-consuming. You could be denied a mortgage, for example, or refused new lines of credit. It can take months or even years to repair your credit history, and this type of crime is hard to prosecute.
While financial institutions, health care companies and other organizations have taken steps to improve security measures in recent years, do not rely on them to protect you. Taking some common-sense steps now can help prevent major headaches later.
PREVENTION Your first step should be to review monthly statements from your checking and other financial accounts. The earlier you catch an error, the easier it is to resolve it. Yes, balancing your checkbook may seem a monotonous chore, but understanding where your money goes will help you spot any irregular withdrawals or charges. Reviewing your credit card bill each month is critical as well, especially if you charge a lot of your daily purchases. If you have not already, this may be a great time to sign up for online accounts. It’s easier and faster to review accounts online, on a computer you trust.
Next, order and review your credit reports. The three credit agencies, TransUnion, Equifax and Experian, are each required by law to provide you one free credit report a year. AnnualCreditReport.com has links to all three, and it is the only place to get them free. (Other sites may try to charge you or get you to sign up for monthly services of some sort.) Stagger your requests, and you can monitor your credit history every four months. While you are at it, make sure your name, address and other information are correct. If you find old or inaccurate information, have it removed.
While companies like your health care provider are no longer printing Social Security numbers on member identification cards, a lot of personal information is still out there. Be sure to shred old bank statements, applications for new credit cards and other documents that have personal information.
Secure your personal information online and offline. Do not carry your Social Security card in your wallet. Keep it at home with your other important documents. Be careful about online passwords as well and change them often. And be vigilant about sharing personal information when opening new accounts online. If online advertisements or offers seem too good to be true, they probably are.
ACTION The steps you will need to take to recover from identity theft depend on the type of fraud you believe has occurred. If you are going through your monthly statements and see an error on an existing credit card, monthly bill or financial account, first call the company to report it.
By federal law, credit card companies have strong consumer protections in place, and they have large departments to investigate fraud. For that reason, you may want to consider using a credit card to pay for online and major purchases. That will give you more protection than if you use a debit card, because the money comes directly out of your bank account when you use a debit card. Making purchases with a credit card provides a layer of protection.
Once you have reported the error and determined there is reason to believe a fraud has occurred, the Federal Trade Commission recommends that you place an initial fraud alert with one of the three major credit reporting agencies. (They are required by law to report the fraud alert to the other two agencies.) The alert, which remains on your credit report for 90 days, automatically entitles you to a free copy of your report. Review this for any accounts you did not open or activity you did not conduct, and confirm that the report has your correct name, address and Social Security number.

LENDERS scrutinize all elements of a mortgage application, but one factor remains critical: the debt-to-income ratio, or the percentage of a borrower’s monthly gross income that goes toward housing expenses. If it surpasses 36 percent, lenders will typically reject the loan.
A report released this summer by the Joint Center for Housing Studies of Harvard University said that about one in eight homeowners had household debt that exceeded half their monthly income in 2008, the year reviewed in the study. That figure is up from 1 in 11 homeowners in 2001.
The higher debt-to-income ratios are a function of the diminished income levels of many homeowners since the economic downturn, said Nicolas P. Retsinas, a senior lecturer in real estate at Harvard Business School and one of the authors of the report.
The real median household income in 2008 — the latest year for which census data is available — was $50,303, which represents a 3.5 percent drop from $52,113 in 2007. In keeping with lenders’ 36 percent debt-to-income limit, households in this category had $1,509.09 available for monthly housing expenses, $54.30 less than in 2007.
“In some ways it’s counterintuitive to the big headlines about falling home prices and increased vacancies,” Mr. Retsinas said. “And while housing prices have moderated, they really haven’t tumbled enough to account for falling incomes.”
Of course, historically low interest rates offer some hope for those wishing to reduce household debt. But borrowers are less likely to qualify for a low-cost mortgage if their finances aren’t strong to begin with.
The average credit score for mortgage borrowers is 750, according to the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, the government-sponsored companies that establish underwriting standards.
Those borrowers with lower incomes or credit scores, or who have less than 30 percent equity in their homes, often cannot qualify for the lowest mortgage rates because lenders consider them to be riskier.
“So if you have higher income, you can go through that door marked ‘Lower Cost Mortgage,’ ” Mr. Retsinas said. “But if you’re struggling, that door is locked.”
Government programs have been encouraging lenders to modify mortgage terms for struggling borrowers, but critics have decried the slow progress of these programs, and the relief efforts are often temporary.
The Harvard report noted another shift in the conditions of homeowners that could affect their borrowing strategies: less mobility, in large part because of the weak economy.
According to the report, 12.6 percent fewer households moved in 2008, for example, than in 2005. For those in the 35-to-64 age bracket, the drop was roughly 35 percent from 2005 to 2009.
This reduced mobility could have some implications for mortgage borrowers. Mortgage executives say a typical homeowner stays in a home for about eight years, and some borrowers set their financial strategies accordingly, opting for adjustable-rate mortgages, or ARMs, that carry a low fixed rate for the first seven years of the loan, for instance.
“Some people, even if they pay their mortgage every month, may not be able to sell their home without writing a check to the bank,” Mr. Retsinas said, referring to borrowers whose mortgages exceed the value of their home.
“Many people aren’t in position to do that,” Mr. Retsinas said, “so they’re tethered to their house.”