Most people are aware of basic safety practices for preventing fraud and identity theft. Being able to spot a scam is a handy tool to have, especially with the Federal Trade Commission reporting a 25% increase in fraud from 2023-2024 alone. The tricky thing about identity fraud prevention is that some financial tasks and seasons of life make you more vulnerable to it.
The good news is that you aren’t a sitting duck. A few intentional habits can go a long way toward protecting your identity and financial information, and knowing what to do if something does happen can make all the difference.
How to Protect Your Credit
Your credit report is one of the most important financial documents you have, so it’s no surprise that it’s a hot target for fraud. Regularly checking your account activity on your credit card statements is helpful, but it won’t tell you if someone has stolen your identity. That’s why it’s a good idea to check your credit score regularly. The three major credit bureaus (Equifax, Experian, and TransUnion) each offer one free credit report per year at AnnualCreditReport.com. Check one every four months to ensure uninterrupted visibility into your credit history. If you see suspicious activity, dispute it immediately through the bureau that issued the report.
If you have multiple credit cards, closing some can make it easier to monitor for fraud, but it can also damage your credit. Solve both challenges by paying off cards completely before closing them, keeping your oldest cards open, and verifying you don’t exceed 30% of your total credit limit.
If you’re not planning to apply for a loan, mortgage, or new credit in the near future, a credit freeze can be a simple and effective way to protect yourself. It’s free, doesn’t affect your credit score, and you can lift it temporarily whenever you need to. You can freeze your credit at all three bureaus: Equifax, Experian, and TransUnion.
How to Be Smart About Major Purchases
Large financial transactions, especially home purchases, are a prime target for fraud. Did you know that wire transfer scams are one of the fastest-growing forms of real estate fraud? A scammer intercepts email communications between you and your title company or real estate agent, then sends fraudulent wire instructions at a critical moment in the closing process.
To protect yourself, always verify wire instructions by phone. Call the title company or attorney directly using a number you’ve verified independently, not one that was provided in an email, especially if there’s a last-minute change to instructions or if you feel pressured to wire money quickly. Additionally, expect the process to be slow, and don’t try to rush it; financial hoops in the homebuying process are there to protect you.
How to File Your Taxes Safely
Next to the holidays, tax season is a favorite time of year for scammers. Here are a few ways to keep your personal and financial information secure while it’s en route to the IRS:
- Never send tax documents unencrypted. Use a secure client portal, an encrypted file-sharing service, or ask your CPA’s office about their preferred method for receiving sensitive documents.
- If you’re filing for yourself, only make payments at IRS.gov or through licensed tax filing software. Remember, the IRS will never ask you to pay via wire transfer, gift card, or cryptocurrency.
- If you receive an email, text, or social media message claiming to be from the IRS, don’t click any links. Navigate directly to IRS.gov in your browser to verify communications.
- Avoid using public WiFi when accessing banking portals, investment accounts, or tax filing software. Use your home network or a personal hotspot instead.
What to Do If Your Identity Is Stolen
If you experience financial or identity fraud, it’s important to remember that scammers are very good at what they do. Not even financial planning professionals are immune to identity fraud, as our team member, Morgan Hatten, experienced firsthand. The shame and vulnerability that can follow fraud are real, but so is your ability to recover. The important thing is to act quickly and know what to do ahead of time.
- Contact your bank and financial institutions immediately. Alert them to any suspicious activity and ask about temporary freezes on your accounts.
- Freeze your credit at all three bureaus if you haven’t already.
- Change your passwords, starting with your email, banking, and investment accounts. Use a unique, complex password for each account and consider using a secure password manager.
- File a report at IdentityTheft.gov, the FTC’s dedicated identity theft recovery resource.
- File a police report. As Morgan’s experience showed, this is often required by financial institutions to resolve fraudulent accounts.
- Document everything! Keep records of calls, correspondence, and any steps you take.
The Best Protection You Have Doesn’t Cost a Thing
The number one rule for protecting your finances is simple: pay attention! Check your credit reports regularly. Know what’s in your accounts. Verify before you click, call, or wire. And if something goes wrong, don’t let embarrassment stop you from acting quickly.
It’s also worth taking a closer look at any apps or software you use for DIY financial planning. Before entering personal information, verify that the platform is reputable, uses encryption, and has a clear privacy policy. If you work with a financial advisor, ask about the steps they take to keep your data secure (learn how we do that here).
Fraud protection is a big deal, but it doesn’t have to be overwhelming. With a few consistent habits, you can be just as smart about protecting your identity as you are about money.