Don't Lose Credit!

By Amanda Bower

Heidi Journey's dreams of opening her own business were shattered when the bank she applied to for a loan found out about her credit history. Journey owed $10,000 on a Discover card, had a Volkswagen Jetta repossessed after failing to make payments, broke an apartment lease, didn't pay college fees and owed money on utility and cell-phone bills.

She learned about those debts the same day the bank did. (Journey had never asked for a Discover card or leased a Jetta.) She was the victim of the worst kind of identity theft--new accounts opened in victims' names without their knowledge, as opposed to the more common misuse of existing accounts. "My credit was destroyed," says the San Francisco-- based fitness model. Four years later, Journey, 29, still has to pay for everything in cash and has yet to resolve all the bills. "Dealing with this is like having a part-time job," she says.

More than 3 million Americans a year are victims of that kind of identity theft, according to Javelin Strategy & Research. The average cost to businesses, which usually swallow the losses, is $9,973 per victim. Now legislators and private industry are working to give citizens more ways to protect their credit.

One logical way is to limit the activities of the three credit-reporting bureaus--Experian, Equifax and TransUnion. It's impossible to open a new credit account--honestly or fraudulently--without contacting one of them to determine whether the customer is credit worthy. The bureaus are happy to offer your personal credit report to a lender; that's how they make money. They also sell address lists to firms that send those mailbox-clogging offers of preapproved loans and credit cards.

If you believe you have been a victim of identity theft, federal law allows you to place a fraud alert on your credit report for 90 days, legally compelling lenders to ask tougher questions to verify an applicant's identity. A company called TrustedID this week launches a new $7.95-a-month service to handle all the paperwork, every 90 days, to keep an alert on your file always. "The bureaus are inherently conflicted, wanting to sell information that needs protecting," says TrustedID co-founder Scott Mitic. The bureaus, not surprisingly, recommend buying different protection in the form of their monitoring services, which alert you within 24 hours of significant activity on your file--after the horse has bolted.

Consumers Union, publisher of Consumer Reports, is campaigning for everyone to have the right to freeze credit reports so that the bureaus can't provide your information to anyone without your O.K. Thirteen states have passed freeze laws (although in some states the option is available only to ID-theft victims), and 23 others are considering freeze legislation. Federal measures to protect financial data will be discussed this week by Congress.

Thanks to California's law, Journey has locked her credit report up tight, and urges family and friends to get any protection they can, too. "Not that it does me any good, because my credit is still screwed up," she says. "But my parents recently got a call asking if they were really trying to buy a sofa in the Middle East." They were not.