Using a credit card may be the most secure way to make a purchase, but that doesn't mean it's safe.
Credit card fraud remains the most common form of identity theft, accounting for 25% of cases in 2006, according to the Federal Trade Commission. "Credit cards have become a significant — and growing — part of the identity theft equation," says Curtis Arnold, founder of CardRatings.com. Blame its popularity on the numerous methods thieves can employ to get their hands on your credit card information — and the ease with which they can exploit it. Should someone obtain your Social Security number, lines of credit are often the first new accounts opened.
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Of course, avoiding this type of identity theft depends largely on your own behavior. Among other things, you need to properly shred those unused cash advance checks and new card offers, shop only through secure web sites, resist replying to phishing emails, and keep a firm grip on your wallet.
However, that vigilance can only take you so far. That's where the credit card itself comes in. Card issuers now offer a whole array of features and services aimed at further safeguarding your personal data and limiting the resulting damage should it be compromised. Some of these services are free while some of them carry a fee — although not all of them are worth it.
We asked some consumer experts what they thought about the latest security offerings from the credit card companies. Here's what we found:
Credit Monitoring
Who offers it: All major issuers.Cost: Up to $15 per month.
Expert Assessment: Skip it.
This service lets your credit card issuer keep tabs on your credit report and credit score, warning you of any changes. Your credit card company will review data from the three credit bureaus on a regular basis and send out customized alerts. You might opt for warnings when a new account is opened, for example, or when your score changes by more than 10 points. American Express's Credit Secure costs $11.99 a month, while Bank of America Privacy Assist Premier is $12.99 a month.
"We're not great fans of credit monitoring systems," says Linda Foley, executive director for the Identity Theft Resource Center, a consumer advocate. "They're reactive rather than proactive." These services will only notify you after the fact that someone has tried to obtain new credit in your name. A better, low-cost alternative is to freeze your credit with the three major bureaus, which essentially denies any incoming applications. You can remove the freeze at any time should you want to open a new account. Most states charge $10 to freeze or unfreeze an account.
Identity Theft Insurance
Who offers it: All major issuers.Cost: Up to $15 per month.
Expert Assessment: Skip it.
Should you become a victim of identity theft, these insurance policies ostensibly cover you for the costs associated with reclaiming your good name. That includes legal fees, lost wages and even the phone bills you racked up while arguing with lenders. In exchange for a monthly premium that the card company tacks onto your account, most banks will cover you for up to $25,000. Citibank Identity Monitor costs $12.99 per month, for example, while Chase Fraud Detector costs $7.99.
"If it was worth you paying for it, the credit card issuers would never offer it," says Scott Bilker, founder of DebtSmart.com. "There are all kinds of red tape to prevent them from paying out a dime." In fact, the bulk of identity theft victims have no out-of-pocket costs, according to a 2005 study by Javelin Strategy & Research. Still worried? Identity theft clauses can be attached to most homeowners or renters insurance policies for $25 to $50 annually.
Photo Security
Who offers it: Bank of America and Citibank.Cost: Free.
Expert Assessment: Worth it, but far from foolproof.
Opt to have your photo placed on your credit card and it should do a good job of preventing other people from using your card at the checkout counter. After all, comparing two faces is far more concrete than trying to assess whether a signature was forged. "If someone stole my credit card and tried to use it, I would certainly hope the cashier would look at it and say, 'That's not you,'" says the Identity Theft Resource Center's Foley.
There's no harm in signing up for photo security, or alternately, a card that lets you use any photo as your design, just don't bank on its effectiveness, she says. Transactions are increasingly made without employees handling consumers' cards at all, thanks to in-store point-of-sale keypads and all of that online shopping we love to do. In the grand scheme of things, a photo card is a relatively simple hurdle for identity thieves to leap.
Purchase Monitoring
Who offers it: American Express, Discover, MasterCard and Visa.Cost: Free.
Expert Assessment: Worth it, but don't rely too heavily on it.
Every major credit card brand uses a formula to compare incoming transactions against your past purchasing behavior and other factors that may indicate fraud. (Say your card is used at 10 a.m. in New York, and then six minutes later a charge occurs in San Francisco.) A single purchase or pattern that raises a red flag initiates a freeze on your credit line until you confirm that all is legit. If you claim fraud, the card number will be cancelled and a new one issued.
Sounds good, but purchase monitoring is far from foolproof, cautions Foley. Issuers closely guard their formulas, so it's impossible to tell exactly what will or will not set off alarms. It's all too easy for an unauthorized transaction to slip through. So you'll still need to keep tabs on your account, reviewing your monthly statement line by line.
Temporary Purchase Numbers
Who offers it: Bank of America, Citibank and Discover.Cost: Free.
Expert Assessment: Worth it.
Next time you shop online or phone in a catalog order, pay for your purchase using a one-time-use or virtual credit card number. These faux numbers link to your real account, but can only be used within constraints that you specify — purchases of less than $300, for example, or before a certain expiration date. Sign up for the service on your credit card issuer's web site (Bank of America, here; Citibank, here; and Discover, here). When you're ready to shop, log in to your account, and use the generated number to pay for your purchase. You can create a new number for every transaction, or set up a few for recurring purchases.
This feature is most secure when you set up virtual numbers for single use only, says CardRatings.com's Arnold. A savvy thief could still pull the number from the merchant's files, or intercept it midpurchase. But because they only snag the temporary number, that data is useless — they can't use it to make other purchases or steal your identity.
Zero Liability Policies
Who offers it: American Express, Discover, MasterCard and Visa.Cost: Free.
Expert Assessment: Essential.
Once you report an unauthorized purchase on your account, your card issuer's zero liability policy automatically kicks in, reimbursing you for any stolen funds. Every major card company offers zero liability policies, but the coverage details differ from brand to brand. MasterCard's policy, for example, may not apply if you have reported two or more unauthorized transactions in the past 12 months. Visa's policy doesn't cover ATM transactions that were completed with a PIN. If you don't feel like reading the fine print of your credit card agreement, then it's worth a call to your issuer to ask when you're protected and when you're not.
In general, you should rest easy, says Arnold. Even if your issuer's policy won't fully cover you, federal law will likely see to it that you don't have to pay too much out of pocket. Thanks to the Fair Credit Billing Act, you already have limited liability for unauthorized purchases: You'd only have to pay $50 maximum no matter how much was illegally charged to your card.
(Using a debit card? Such transactions are covered under separate, less-protective laws, making it even more important to know your bank's zero liability policy.)
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