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Fraud and Identity Theft Protection: The Best Payment Options to Keep Your Identity Safe

Aug. 31, 2012
Managing Money
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Checks, debit cards and credit cards all make you vulnerable to fraud and identity theft. This is because so much of your personal identifying information is connected to these “virtual” forms of payment. The only way to truly protect yourself from identity theft and fraud with monetary transactions is to always pay in cash.

As cash may not always be a viable or convenient option, knowing how each form of payment can make you vulnerable—and the measures you can take to strengthen your security—is important to protecting your identity, and your bank account.

Personal Checks

Checks are one of the oldest surrogates for minted money, and checks have been used in some form since banking systems began to evolve in ancient societies. They’ve come a long way since their inception—modern checks have many security features to make them more secure and reliable. However, checks do still carry inherent flaws that make them vulnerable to identity theft and fraud. One huge drawback of checks is that they usually have your name, address, account and routing numbers printed clearly on them. Many scams involving checks result from either “washing” the check, where chemicals are used to dissolve the ink on a check, or recording account information. Check washing isn’t as easy as it used to be because of hidden security features within checks; however, it is recommended to always use black ink with checks as well as a gel based ink, both of these measures combined will make check washing more difficult.

Because of the personal information printed on a check, a certain amount of trust goes into paying with one. Always know the person or business you are giving a check to. Never write a check to an individual you don’t know, such as in a person-to-person transaction arranged on Craigslist. Once your account number becomes available to an identity thief, it can be used for a variety of nefarious practices.

Credit and Debit Cards

Many people may believe that using a debit card or credit card is a secure way to make purchases, because the card never leaves your possession, and because more sophisticated technology is involved. This is simply not the case. Just as with a check, it is important to know whom you are giving your credit card information to, and that the systems being used to take your information are safe. One common scam is to attach “skimmers” to card machines to record card information and even keystrokes used afterwards—like your pin number or the zip code associated with the account. Look for any odd or extra attachments to credit and debit card machines, and do not use them if they look like they may have been tampered with.

This can become a problem when you’re paying for something at a restaurant, because your card usually goes out of your sight, meaning it’s easy for someone write down the card number, expiration date, and the security code on the back. The card can then be used for making payments online where a physical card is not needed—however, usually other information, like your billing address, will be required to validate the card.

Online Payment Platforms

Hacking websites in order to collect and disseminate the personal information stored on them has become both a grave concern and a common occurrence. When it comes to online payment, encryption and reputation are vital. At the bottom of any website requesting payment information from you, there should be a seal that says “TRUSTe,” or another seal from a reputable online system. What the seal means is that the site has been accepted and verified by a third party and complies with Federal Trade Commission regulations regarding privacy and security. PayPal is a good option when paying online, because they store your information in an encrypted data bank, meaning you will not have to provide your card or bank information to other sites that don’t use encryption techniques. Once your private data is saved in PayPal’s secure system, you can use your PayPal account to pay at a number of websites, so you don’t have to directly provide them with your raw data.

NerdWallet’s Recommendations

When you do pay with a check, think twice before sending it in the mail. Identity thieves can and do go through mail, looking out for envelopes addressed to places you’re likely to send a check (such as the electric company), and then steal the check inside. Consider getting a money order or cashier’s check. These options are the same as cash and don’t contain any of your personal information. They can still get stolen, but it will be a one-time loss, rather than the ongoing severe losses that can come from identity theft. Utility bills can also usually be paid online using secure servers.

Never have a site store your personal information and credit card number, no matter how convenient it is. Many companies—even ones you know well—don’t always encrypt the information and are vulnerable to hacks. When paying on a site, always look for “https” at the beginning of a web address. The “s” means that the information is being sent over a secure server and has added protection for your personal information.

Always check bank statements for irregularities and report them to your bank immediately. This is the first and main source of detecting fraud or identity theft. Many states have different durations of time that you can report a fraudulent transaction from your account under the Uniform Commercial Code, and can even be as short as 30 days after you receive your statement. If you notice a fraudulent transaction, report it to your bank and then take the steps laid out in our earlier post.

Expert Recommendations:

William Tran, Field Marketing Manager of Secure Transactions for Gemalto North America, had this analysis of evolving payment methods:

“Both consumers and financial institutions are motivated to migrate toward digital payment methods because the infrastructures being employed to make digital transactions possible are based on greater convenience and security—something we can all get behind. The digital shift in payment methods makes sense if you consider the information exchanged when paying by check: consumers essentially hand over a small piece of paper that contains key pieces of information about them, including financial information like a checking account and routing number, maybe an address and phone number, with no control of what happens to that check after it exchanges hands. This makes checks a hotbed for criminal activity and increased instances for check fraud or identity theft. Plus, we can all probably agree that writing a check is a miserable way to pay. On top of that, checks are not universally accepted – try writing a personal check to pay for a subway ticket in Paris.”

Nikki Junker, social media manager of the Identity Theft Resource Center, warned online shoppers to be aware of security issues:

“Online shopping can lead to many types of scams.  We recommend that people buy from companies that have a good reputation and they trust.  If in doubt, consumers can check the company out with the Better Business Bureau online. It is also important to remember that if something seems too good to be true than it probably is.  Once online shoppers have made a purchase it may be impossible to get their money back, so they should make sure they are not being scammed before they make the purchase. They should also be sure to use a credit card that is not attached to an ATM or Debit card.”

James Munton, author of “The Con: How Scams Work and How to Protect Yourself,” had this advice:

“PayPal is a reputable payment processor. Unfortunately, con artists often use the PayPal name to try and lure people into responding to phishing emails. Always go directly to the PayPal site to complete transactions; do not click on links in emails, even if they look legitimate. Be wary of online payment sites that you have never heard of. Most legitimate sellers who use third party sites will accept PayPal payments.”