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Credit

The term credit can be used in many different contexts. The most common of these is its use as a financial term, such as in a credit card, where it refers to the granting of a loan and the creation of debt. Any movement of financial capital is usually quite dependent on credit, which in turn is dependent on the reputation or credit-worthiness of the entity or individual who takes responsibility for the funds.

Similar is its usage in commercial trade, where the term credit is used to refer to the approval taken to make delayed payments for goods purchased. At times if a person is going through a phase of financial instability or difficulty, credit may not be granted. Companies frequently offer credit to their customers as part of the terms and conditions of a purchase agreement. Organizations that offer credit to their customers frequently employ a credit manager to assess the risks that might be involved in doing so. Often a proposal of credit made to the wrong individual or entity ca prove to turn into a non paying asset there by adding to the liability of the funding company.

Credit is often denominated by a unit of account, unlike money by a strict definition, and it in itself cannot act as a unit of account. Many forms of credit can easily act as a medium of exchange however. Anyhow, various forms of credit are frequently referred to as money and are included in estimates of money supply to the individual or entity in question.

Credit can also be traded in the market. This in its purest form is called the Credit Default Swap market, which is essentially a traded market in credit insurance. A credit default swap represents the price at which two counter-parties will exchange this risk - the protection seller takes the risk of default of the credit in return for a payment, commonly denoted in basis points, where one basis point is equivalent to 1/100 of a percent, of the tentative amount to be referenced, while the protection buyer pays this premium and in the case of default of the underlying loan, bond or any other receivable, delivers this receivable to the protection seller and receives from the seller the par amount which is made whole.

Importance of the Credit Score in the United States of America

In the United States of America, a credit score or credit rating represents an estimate of an individual's financial credit-worthiness as calculated by a standard statistical model. A credit score attempts to quantify the likelihood of a prospective borrower to fail to repay a loan or other credit obligation satisfactorily over a specified period of time. The credit score is normally based on the information in an individual's credit report. Lenders such as banks and credit card companies use credit scores to manage the risk that is posed by lending money to consumers and keep it at a minimum. Examples of this kind of uses include determining a list of people who qualify for a loan, assigning credit limits, assigning a suitable interest rate, and managing accounts that are already open and, for example, treatment of accounts that are already in default. The use of this system of credit or identity scoring prior to authorizing access or granting credit is regarded the implementation of a trusted system. While the most popularly-known score in the United States of America is FICO, there are several others, such as NextGen and Vantage that also operate.

The FICO score

FICO (pronounced similar to 'psycho', rhymes with it) is an acronym for Fair Isaac Corporation (traded publicly under the symbol FIC) and usually refers to the best known credit score system in the United States which is calculated using different mathematical formulae developed by this company. This score is one of the most important factors in obtaining credit in the United States of America and demarcates you into categories fit to receive good or bad credit treatment. In institutions which use scores as the primary factor in their lending decisions, scores below certain numbers which is usually set by each lender's risk management department, may result in denial of credit or the credit being offered at a higher interest rate.

The three major credit reporting agencies in the United States of America, namely Equifax, Experian and Trans Union, calculate their own FICO scores, which go by different trademark names as well as many different versions of the score, and these often differ because of what they are meant to predict and when they were written originally. For instance, Beacon, Beacon 96 and the Pinnacle are available only from Equifax; Empirica Auto 95 Precision Score and Precision 03 available only at Trans Union, and Fair Isaac Risk Score available only at Experian. These versions which were all developed for the respective agencies by Fair Isaac, differ from one another and are updated periodically to include changes and reflect the consumer's current repayment behavior. The NextGen scores are the most recent addition to the list of scores, but creditors vary in terms of their choice version that they prefer to use.

These scores often use a multiple scorecard design. Each version uses 10 or more individual scorecards, and each of these individual scorecards are generally compared with similar others. For instance, a borrower with two one month old late payments will be scored against a population with a few minor delinquencies. The individual in question is then graded according to the variables that seem to indicate a repayment risk in that group. This feature can cause a borrower with delinquencies to score in the same range as a borrower without any delinquencies.

It is worth mentioning that each of these credit reporting agencies have also developed their own separate proprietary versions of a credit score that is intended to compete with Fair Isaac's score. Although not as popularly used, these scores like Trans Union's TransRisk score or Experian's ScoreX score are less expensive than the FICO score and, in certain situations, may predict the risk level of a prospective borrower more accurately. The cost savings of a non-FICO score are found to be tempting to some banks and credit card companies, who desperately need an accurate risk assessment on millions of accounts every year. Only time will tell whether these alternative scores will ever manage to displace Fair Isaac from its dominant position in the U.S. market when it comes to credit scores.

Almost all large banks also have a practice of building and using their own proprietary statistical models for credit scoring purposes, often in conjunction with the FICO score or other outside scores. The statistical models that generate credit scores are most often subject to regulations as laid down by the federal government. The Federal Reserve Board's Regulation B, which implements the Equal Credit Opportunity Act, explicitly prohibits a credit scoring model from considering any prohibited basis such as race, religion, national origin, color, sex, or marital status for the calculation of the same. Regulation B also dictates that credit scoring models need to be empirically derived and statistically sound. Moreover, if any adverse action needs to be taken as a result of the credit score, for example if an individual's application for credit is denied, then specific reasons for the denial must mandatorily be provided to the individual. A simple statement that the individual failed to score high enough is insufficient; the reasons must necessarily be specific and detailed.

There are several generally accepted algorithms that exist for extracting the primary contributing factors to a low credit score. One or more of these algorithms are normally used to supply a list of reasons in the event that a loan applicant has been denied credit, in order to satisfy the Regulation B requirement that specific reasons are disclosed. Some consumers feel these adverse action reasons are somewhat insincere, as the only determining factor for credit denials is a numeric score and the reasons are summed up only for the consumer.

As we have already seen, each credit bureau also has one or more of its own generic credit scores, available both to consumers on their websites as well as lenders. For ease of use, these scores are usually mathematically scaled so that they fall in the same general range as the FICO score. These scores are used by some businesses to assess credit-worthiness in the absence of which they would not be offered; however the FICO score continues to be the dominant score in use today. Fair Isaac currently offers scoring models for the U.S.A., Canada, and South Africa. It also offers a "Global FICO" for many other countries across the world.

Credit Scores Online

FICO scores are available online, on websites such as http://www.myfico.com, for about $45 for scores from all three different bureaus. This is significantly at a higher price and more difficult to get than potential creditors would want to pay for the same information; for instance a loan broker is able to get all three reports with FICO scores for as little as $15 with only a name and social security number.

Purpose of a FICO Score

A FICO score is essentially a tool for those financial institutions or individuals who look to obtain debt. There are many bizarre myths surrounding the reason why one should build a FICO score, that are spread by the banking industry and the media outlets they endorse, as also do many self proclaimed financial advisers. Some of these myths proclaim that you need a FICO score to rent apartments, student loans, cars, obtain cell phones, and home loans though many established financial advisers point out that this is not the case in reality. Some other financial advisers advocate against using debt and instead opine you'd rather use your personal income to build wealth and save for purchases. They proclaim that even though many of them are millionaires themselves, their own FICO score is 0 because they do not borrow money or have any debt.

Most importantly what needs to be noted hence is that a FICO or Credit Score is not an indicator of wealth but rather a tool used by banks and other lending institutions to determine credit worthiness when lending money to an individual. Furthermore it has been seen that a high FICO or Credit score is necessary only if an individual or financial institution is looking to continuously obtain debt.

Make-up of the FICO Score
 
FICO scores and its variants have been designed to measure the risk of default, by taking into account various factors. Although the exact formula for calculating the FICO score is a closely guarded secret, Fair Isaac has disclosed the components and the approximate weighted contribution of each. This approximate makeup of the FICO score that Fair Isaac has disclosed to consumers is as follows:

- 35% punctuality of payment in the past 
- 30% capacity used which is the ratio of current revolving debt (for example credit card balances) to total available revolving credit (for example credit limits) 
- 15% length of credit history 
- 10% recent search for credit and / or amount of credit obtained recently 
- 10% types of credit used (for example installment, revolving, consumer finance)

The above percentages provide a very limited degree of guidance in understanding a credit score. For example, the 10% of the score that is allocated to 'types of credit used' is undefined, leaving consumers unaware what type of credit mix to pursue. 'Length of credit history' is also an unclear concept since it consists of multiple factors like being the oldest account open and the average length of time an account has been open for. Though only 35% is attributed to punctuality, if a consumer is substantially late on numerous accounts consecutively, his score is sure to fall far more than 35%. Bankruptcies, foreclosures, and judgments are certain factors that affect scores substantially but are not included in the simplistic pie chart provided by Fair Isaac.

Furthermore, Fair Isaac does not use the same 'scorecard' for everyone. The scorecards have been segmented so that there are over a hundred different actual scoring models that are applied to different individuals based on different ranges of input values; some scorecard segmentations for instance include age, depth of credit history, etc. The implications of this kind of segmentation are that while the approximate weighted contribution detailed above may be an average across all scorecards, individuals will receive different scores or weightings based on the scorecard segmentation category that they fall into. Some consumers have noticed their scores decreasing by small amounts for no apparent reason and fail to get an explanation in this regard from the scoring authorities.

The FICO score is not all important too; although current income and employment history do not influence the FICO score, but they are also considered while applying for credit. For example, an unemployed individual with no other sources of income will not usually be approved for a home mortgage, regardless of his or her FICO score.
There are several other special factors which can weigh on the FICO score:

o Any funds owed because of a court judgment, tax lien, or any similar dictate, carry an extra negative penalty, especially when recent.
o Having above a certain number of consumer finance company credit accounts also calls for a negative weight; critics are of the opinion that this causes a vicious cycle, locking people into continuing to use consumer finance companies and hence should be avoided.
o The number of recent credit checks also can weigh down on the score, although the credit agencies claim that credit checks that are made within a certain window of time do not aggregate, thus allowing the consumer to shop around for rates.

Range of Scores

FICO scores range on an average from approximately 300 to 850 and exhibit a left-skewed distribution with a United States of America median around 725. A score above 720 is generally considered to be good credit, while a score below 600 is considered to be poor.

Free Annual Credit Reports

As a result of the Fair and Accurate Credit Transactions Act or the FACT Act, each resident of the United States of America is entitled to one free copy of their credit report from each credit reporting agency once in every twelve month period. This information is available at the credit bureau-operated website http://www.annualcreditreport.com from where it can be accessed. However, this report does not provide credit scores, instead, it is mostly useless consumer credit scores which are not used by any businesses, are offered for purchase at the time these reports are generated. Many other commercial websites offer free credit reports; usually these sites attempt to lure consumers into paying for related services. It just goes to further prove that nothing in today's world is available truly free of cost!

Ways to Improve the FICO Score

Since the method involved in calculating the credit score is essentially nothing but a complicated formula, one can change the score by causing changes in the variables that are important factors in the equation. There are several approaches to accomplishing this, some of which are:

Credit Counseling

Various credit counseling organizations are available for consultation and the services they offer are usually free of charge. Mortgage professionals however do caution that    using a credit counseling service may negatively affect your credit report.

Credit repair

There are many credit repair organizations also that exist which offer their services free of cost; however these organizations have been found to employ less standard solutions. Hence, many websites recommend against using credit-repair organizations, since they claim that the tactics adopted by these organizations are illegal. A typical example of such an illegal credit repair approach is to obtain what is known as an Employee Identification Number or EIN and use this while applying for a credit; this Employee Identification Number is the same length as a Social Security Number and is tied to your name in the same way. This practice is illegal however and a blank credit report often looks just as bad as one with a derogatory item on it. Some credit repair organizations claim to be able to accomplish immense improvements in scores in very short periods of time. The costs involved in these repair activities are usually prohibitively high and the results are not usually guaranteed to be desirable.

Help Yourself!

It helps to believe that you can trust yourself and your intuitions to try and make things better. Though professionals may have useful advice, there are a number of ways in which the individual himself or herself can help oneself to improve the FICO score. However, because the exact formula is not known, the following suggestions are not guaranteed to be sure shot successes, but nevertheless are likely to result in a better credit score:

Check Credit Reports to Eliminate Flaws

This is the first strategy to pursue in order to improve a FICO score as recommended by almost every credit repair organization and credit bureau. Over and above this, you could employ all or some of the following methods:

1. Get your free annual reports by writing directly to the credit bureaus, or going to the website www.annualcreditreport.com.
2. Locate any inaccuracies in your reports; this often helps since credit reports have a notorious reputation for having a substantial amount of inaccuracies. Check all bits of information, not just information marked negative since even seemingly harmless incorrect neutral information can weigh negatively on your report. For instance, if your credit limit is stated incorrectly low, it will appear that you are using a higher percentage of your total capacity which would in turn lower your score.
3. Bring to the notice of the relevant authorities and dispute these inaccuracies as soon as you can. You may take the matter up with the creditors directly or with the bureaus. Creditors often tend to have live operators while bureaus do not, so you can choose as to whom it would be easier to for you to contact.

Many sources recommend filing disputes with bureaus through certified return receipt mail and prefer this mode over the one involving creditors. Disputes can also be filed on the credit bureau's websites, although the options are not very flexible on these sites. This generally works for information that is genuinely bogus.

Punctuality

It is needless to say that punctuality will help improve your FICO score. Although punctuality may not help in the short term, over the course of some time, say a year, paying bills on time will increase your score by roughly 30 points, and more importantly, will prevent your score from dropping further.

- Paying bills on time is important, since any payments more than a month late will affect the credit score. You need to note that a bill issued on March 15 with a due date of March 31 for instance, does not become a month late until April 30; however, if you have the means to pay, it is best that you do so earlier rather than later. Even a single late payment can result in a drop in your credit score by over 20 points!

- Payments made after the due date have an increasingly bad effect on your score, so it is best advised to pay off late bills as soon as possible, you can also try negotiating with service providers to have derogatory remarks taken off your report. In addition to this, ensure your account does not get into the collection department's lists since having such accounts are much worse than late payments. Accounts usually go into collection status after about six months of non-payment which means you have ample time to ensure you do not enter this bracket.

- Set up as many automated payments as possible since forgetfulness is definitely not reason enough to compromise on a good credit rating! This will help avoid neglecting to pay a bill in the future, one must however remember to maintain enough funds in the bank account while making such payment commitments and also ensure that the address for each of your accounts is updated from time to time. Payments made via the internet are also much quicker and safer than relying on the postal service to get your payments across in time.

-Paying bills before the due date also helps better your score, since this will lower the total interest charged, which in turn would reuduce your debt to credit limit ratio.

Removing Derogatory Statements

- It is important that one never gives up negotiating with collectors and businesses to remove any late payments or collections statuses from a credit report. Often, collectors are more than happy to take negative notices off a credit report in exchange for prompt payment. It is also important for consumers to obtain any such agreement in writing, since once the collectors have been paid off it is next to impossible to have these derogatory statements removed.

- Be aware of the statute of limitations on any debt you are attempting to clear by dispute and in such a scenario, contacting a collector may be akin to awakening the proverbial sleeping dog. The statute of limitations is defined as the period of time set by a state's law, within which a creditor may file a lawsuit to enforce its legal rights. Once the period of the statute has expired, the creditor can no longer sue on the account. For instance, if you live in California, which has a four year statute of limitations on written contracts, and your last payment was due on May 20, 2002, but you failed to make that payment, it is advisable to wait until May 21, 2006 to contact the collector to dispute, or attempt to negotiate the payment of a small amount in an attempt to settle the debt and have them delete the account from the credit agency records. In addition to this, if the creditors know the statute has run over, there is a possibility that they may be less inclined to even respond to a dispute. If this occurs, the credit reporting agency must delete it from your record. It also helps to be aware that in many states making even a small part payment on the account or even, in some cases, promising to make a payment, may cause the statute's time period to start all over again, which would not be the most desirable of situations.

- It is common sense to realize that businesses usually remove negative remarks in exchange for more business. This tends to work best when the credit branch of the business is closely connected to the sales branch, and when you happen to be a significant customer. Businesses understandably, often have little interest in preserving the accuracy of a customer's report for other businesses to review.

- If you have federal student loans that fell into default, it might help to pursue loan rehabilitation policies. Labels of collection or default can be removed from a loan's history with regular payments over the course of a year, however, this needs to be arranged for ahead of time.

- Per-campus student loan programs do often make exceptions and remove negative remarks if you manage to find the right person to take care of this for you. A good justification for a late payment like non receipt of the bill never hurts and might just see you through, but also do remember that most excuses do not have legal merit and you can surely expect responses which imply that it was your responsibility to pay, even if the bill never arrived. It is vital to appear appealing to human decency and sense of campus community and in spite of this if lower ranking officials refuse to help, letters to higher ranking campus officials do usually find success.

- You have nothing to lose by being polite, especially when you are at the receiving end; it helps to remember that nothing is gained through combativeness or disrespect.

-When none of the above work, the only option you are left with is to threaten and / or pursue legal action. Collectors and businesses have nothing to gain by reporting negative information about you and would never do this with the intention of maligning your financial character. Moreover, since even a minor legal interaction can cost thousands of dollars, most businesses and creditors would rather remove items than deal with a lawsuit.

- If none of the above approaches apply or if you are faced with failure while trying to implement each of the modes listed above, you are left with the option of filing disputes of negative marks on a credit report. Even if the negative marks are accurate, some creditors do fail to respond to disputes in a timely fashion, which in turn removes negative marks. Rather than pay the postage it takes to respond, some creditors tend to disregard any communications regarding paid accounts. It is considered mail fraud to falsely dispute an item, but as long as you claim to believe an item was never late, you can surely feel free to dispute.

Decreasing Credit Capacity Used

Decreasing the ratio of debt to credit capacity consists of two major approaches which are of increasing the total capacity and decreasing your debt.

- It helps to strive to increase limits on credit cards. The FICO formula weighs the ratio of balances to the total available credit, hence if credit limits are increased while balances stay the same, this ratio drops and your score will increase. If possible, one must also try to increase limits without triggering credit checks, as a credit check may drop the existing score by a few points.

- Use your good relationships with banks and other businesses to your advantage. Banks have been known to remove late notations for good customers. When a consumer is turned down for credit cards elsewhere, such bank will often provide a low-limit credit card. This card will increase capacity by decreasing the capacity used ratio, even if it is only by a small amount.

- Consider the option of secured credit cards, these cards factor into credit scores in a manner identical to unsecured cards. If a consumer opens a $2000 secured credit account, the resulting credit report will make it appear that someone has trusted that consumer enough to extend him or her credit, and thereby increase your capacity by $2000.

- Pay down the sum of all balances without fail so that you are using the least total capacity. For instance, using only 30% of your capacity will trigger a reduction in score; 50% is more severe, and can cause a drop of over 10 points while 75% is a severe red flag. A revolving balance of 0% has a slightly lower benefit as compared to a small percentage.

- It also helps to pay down each individual balance. It makes sense to move balances between cards so that no single balance is at more than 30% of its capacity at any given point in time. The 30% line may at times be difficult to reach, in such situations try to increase credit limits, or at least reduce card balances to less than 75% of capacity. This however contradicts the advice many credit companies give while trying to rope in new customers to transfer balances, since managing line usage below these thresholds will lead to a higher score than consolidating everything into one credit line and roughing it out. This will require more bills to be paid each month, which in turn requires extra work on the part of the consumer.

- If you are considering a mortgage refinance, you may be able to move some credit card debt to your home loan or at other times by withdrawing equity.

- You also need to keep an eye on how student loans are reported since these loans have a notorious reputation of being reported multiple times, making one's monthly payment obligations look much higher than they actually are. This can both have both positive and negative effects - while a credit report will show more obligations, on the other hand if these loans are in good standing, you will show a good repayment history. If a loan is reported as paid late multiple times, you need to ensure the removal of duplicate entries of negative remarks.

Minimize Damage in Tough Times

- Attempt to negotiate with your creditors, discussing your situation and expressing the willingness to pay often goes a long way in salvaging the situation. If you can commit to a firm repayment schedule, creditors have been often found to be more than willing to skip reporting any delinquency.

- If you have lapsed or failed to pay on time, sometimes the lender will forgive late fees and marks under certain conditions that they deem to be genuinely worthy of an excuse. Typically this implies that you have not abused this privilege and that, you have paid a reasonable sum, and requested that the late charges be forgiven. This may also prevent them from reporting it to any agencies. The best you can do to avoid this situation is, if you know that you will not be able to make a payment on time, make arrangements with the creditor in advance as soon as possible.

Limit Credit Enquiries

- Avoid causing inquiries to be posted to one's credit report since credit score is affected adversely by recent inquiries made against one's credit report for the purpose of evaluating an applicant for creditworthiness, including insurance. The credit score is not affected by obtaining a copy of one's own credit report, neither is it affected by promotional inquiries made by direct marketers such as credit card companies who send out prescreened direct mail offers; and not even by account review inquiries made periodically by your own financial institution to manage the ongoing risk of your account. Only the action of applying for new credit or insurance creates a hard inquiry, as it is termed, on one's credit report which affects the score. This normally drops a FICO score by roughly 5 points, which remains for as long as two years.

- While applying for credit, ensure you refuse to allow the creditor to check your credit until the latest possible stage of your transaction. While shopping for a mortgage for instance, it helps to generate your own FICO score and use that score in discussions.

Revolving Credit

Revolving credit is a type of credit that does not have a fixed number of payments, as against installment credit. Typical characteristics of revolving credit are:

- Payments are made by the borrower based only on the amount they have actually used or withdrawn, plus interest. 
- The borrower may repay over time, subject to any minimum payment requirement, or in full at any time. 
- Use or withdrawal of funds up to a pre-approved credit limit by the borrower.
- The amount of available credit increases and decreases as funds are borrowed and subsequently repaid. 
- The credit may be used repeatedly.

Identity Theft

Identity theft or identity fraud is not considered a technically correct term to be used by the media to describe this type of a crime, tort or other harmful act by deliberately impersonating an individual. Most commonly, this term us used in relation to credit card fraud, although mortgage fraud, and also gaining illegitimate access to the finances of a specified targeted person or a frame of a targeted person falls within what mass media reports of identity theft have included. Less heard of instances of identity theft are to enable illegal immigration, terrorism, and more rarely for espionage, or changing identity permanently. It may also take on the garb of a means of blackmail, especially if medical privacy or political privacy has been breached, and if revealing the activities undertaken by the thief under the name of the victim would have serious implications like the loss of a job or the break-up of a marriage. While identity theft appears to cover the entire spectrum of crimes committed while pretending to be someone else, it is only used to describe those situations where the person being impersonated has no knowledge of the person pretending to be them, or else does not approve of their actions. Hence for example cheating on an exam or at a driving test is not considered to be a case of identity theft.

Since identity theft is so broad a concept, any discussion of it must quickly narrow down to the more specific cases like credit card fraud. Likewise any proposed remedy of identity theft is in actuality only a remedy for a specific case of identity theft, with the rather unachievable exception of 100% perfect verification. Biometrics is considered to be such a technology, but in reality risk worsening the situation leading to reverse burden of proof problems in courtrooms as biometrics can also be tampered with as part of an attack. Techniques for obtaining identification information range from the crude means like stealing mail or rummaging through rubbish (referred to also as dumpster diving in the United States of America) or stealing personal information in computer databases, to infiltration of organizations, via their websites or otherwise, that store large amounts of personal information.

Identity theft is generally committed as the result of a serious breach of privacy. Except for the simplest credit-related cases, it is usually not possible without breakdowns in

- customer privacy, in which case the consequences may be limited to fraud on only one corporation or so, typically the one that leaked the data in the first place, for example account numbers.

- consumer privacy, which is more serious a matter, where credit card numbers or other generally-useful identity data are stolen and used widely.

- client confidentiality and political privacy, making it very easy to effectively impersonate someone, by using confidential information that an ordinary impersonator would not normally have access to.

How Accurate is the term Identity Theft?

The term identity theft is regarded inaccurate by many since it is merely a relatively new term for fraud where an individual is impersonated. This is based on the reasoning that clearly, a person's identity is not something that can be stolen, and individuals subject to fraud do not cease being who they are. Further, the use of this term suggests that the victim of such crime should usually be the individual who is being impersonated. While it may certainly be true that this individual may be caused a certain amount of trouble, like being pursued by debt collectors, the real victim is actually the creditor who is being defrauded. It should be hence be strongly emphasized that the impersonated individual does not have the liability for any crimes fraudulently carried out under their name. Some creditors may well attempt to put pressure on that person, claiming that they are liable and merely attempting to claim that their identity has been stolen as a ruse to get out of paying the creditors what they owe them. In such cases it should be strongly borne in mind that it is for the creditor to prove that the debt is owed by the impersonated individual - and not the individual themselves and they have no right what so ever to penalize the victim unduly.

The Consequences of Identity Theft

In many parts of the world, identity theft has earned the dubious distinction of being the fastest growing offence. However, in the United States of America, a longitudinal 2005 study by Javelin Strategy & Research has shown that the crime had leveled off since a 2003 study from the Federal Trade Commission was released in the year 2003. The most recent U.S.A. Javelin data also showed that a shocking 9.3 million individuals or 4.25% of all adults are victims of identity fraud on an annual basis. In the United Kingdom in the year 2005 the consumer group which issued a report claiming that one in four people had been victimized by identity theft, or knew someone who had been so. This misleading claim linking victims with those who know victims in a single statistic had achieved wide publicity. The Home Office in Britain which does not collate data on identity theft nonetheless claims that the activity is reaching epidemic proportions.
It is difficult to efficiently quantify the extent of real personal privacy breaches, since the laws requiring disclosure of such instances are only coming into existence.

Factors attributing to the Crime

Instances of identity theft have been seen to increase as the willingness of lenders like issuers of credit cards to extend credit without physical human contact, the ability to transact sales and other business at a distance (over the internet and via telephone), and the availability of personal information, and its huge volume held by third parties, has increased.

In the United States of America for instance, extremely personal information like mortgage details, social security numbers, and driving license details are publicly available. Such sensitive information is far harder to obtain in most other countries, instead it is typically held by numerous government and private sector bodies, and is consequently available to their many employees and other associate organizations. One of the matters of particular concern is the comprehensive personal financial information and other related data held by credit reference agencies. The proliferation of junk mail from many of these organizations often includes name and address, and this has aggravated the situation.

In the United Kingdom, companies such as those engaging in car hire services, car dealerships, solicitors and banks now make it a point to routinely take a copy of identity documents as a mandatory condition before doing business. Such actions are restricted by the fifth principle, in particular of the Data Protection Act passed in the year 1984 and as per this, data subjects namely consumers in this context may demand that any copies made be destroyed after a reasonable amount of time, in this example once the vehicle has been returned, and accepted back as being in the same condition it was supplied in. As a result of the data protection legislation in the United Kingdom many organizations now require telephone callers to disclose personal details such as date of birth and mother's maiden name as a means of identification before they will enter into discussion of personal effects. This provides eavesdroppers an easy opportunity to collect this vital data. As a consequence, more people are now giving password responses on being asked for such information, for instance, by telling the bank that their mother's maiden name is a password rather than 'Smith'. Though this makes no big difference while being eavesdropped, by using different passwords with different companies, the value of information gained though eavesdropping can be compartmentalized and restricted in that sense.

According to the Javelin study, identity fraud crimes in the United States of America now total a whopping $52.6B annually which is up 2.3% from the previous survey, with a per-individual total of $5,686 per victim. The Javelin random-sample study also showed that individual victims in the U.S.A. spend an average of about 28 hours restoring their affairs, while the majority of their costs are reimbursed by financial providers, who in turn pass much of the cost on to merchants or other service providers.

Contrary to popular belief, illegal access to personal information is usually gained through traditional means such as paper financial statements, checks or credit cards, and the perpetrator is often someone previously known to the victim, such as a friend, family member, or acquaintance. It is rumored that some of the local authorities in England have their rubbish sorted for recycling by convicts or jail inmates, which represents an additional risk. This type of identity theft suggests that privacy guard strategies will not solve the problem and that it is the promiscuous nature of transactions at a distance without actual physical human contact, that enables the fraud to e committed. However, if we ban all business from being done online or by phone, then the economy will be seriously harmed, so the solution must lie in serious unbreakable encryption with randomly generated codes and a dual key system. Either this, or a secure line in conjunction with biometric verification and a secured un-hackable database of such biometric data in a central site.

Country Dependence

It does seem at times, that the prevalence of identity theft and the seriousness of typical cases are quite dependent on the country and the legal system and commercial habits existing there. Most countries in Continental Europe, for instance, require their citizens to own ID cards which are needed to prove one's identity on numerous occasions, like opening or even accessing bank accounts, renting cars, checking in at hotels etc. As ID cards are in general hard to counterfeit just like currency, and one usually has to physically show the card, it requires substantial criminal effort to commit fraud. Being used to this standard, businesses are less likely to accept an identity verification by means of a semi-secret personal information such as social security numbers to ascertain one's identity. It could be owing to this that it is also less common to do business by phone as it is in the United States of America for instance.

Hence, the threat posed by relatively simple identity theft, which relies on obtaining semi-secret information such as social security or credit card numbers then depends on how much can be done with this information. Is it, for example, possible to open an account using false ID in the form of a stolen Social Security Number, and by doing so wreck the victim's credit record? Do banks accept credit card payments without signature or a numeric Personal Identification Number? Differences in this kind of legal framework may explain the large differences in damages due to identity theft in different countries.

Rigorous research has shown that there are some methods that have been proven to be most effective at preventing identity theft or fraud. Here are a few precautions one can take against identity theft:

- Freeze your credit, if such a facility is available in your state, since with a credit that is freeze, no one can succeed in opening any form of credit in your name.

- Request your own credit report systematically, say each year or at shorter intervals, and check the reports for inaccuracies and new lines of credit issued that you did not request. If you have been the target of identity fraud in the past, check the data every six months or interval shorter than that. In the United States of America for instance, you are permitted a free copy of your credit report once a year from each credit reference agency, in a bid to help the cause of victims of identity theft.

- Minimize the use of the postal service to send or receive financial documents, checks, and have your name removed from junk mail lists; it has been found that almost 8% of identity fraud results from stolen mail. Try and mail letters personally from the post office. In a bid to minimize pilferage of valuable documents, the Postal Service of the United States of America requires mails heavier than 16 ounces or 454 grams to be presented face-to-face but never dropped off in collection boxes. As a rule, one must never pass your mails to strangers not in postal uniforms even if they have postal identifications. In America, where standalone mailboxes are common, it would be a good idea to install a lock on the box and regularly collect delivered mails as soon as possible.

- Check your bank accounts regularly, preferably each week online or at an ATM. It has been seen that over 70% of instances of identity fraud is detected by the victim, and victims who do so through electronic methods suffer losses of less than 1/8th that of those who rely on paper statements for monitoring account activity.

- Stick to using reliable ATM's at reputable sites only. Always scrutinize your surroundings for anything suspicious and watch out for any suspicious attachments to any ATM that may steal information.  For instance, if the interior of a bank is closed but an indoor ATM is still accessible with a card, refuse helping any stranger to enter. If in doubt, do not use the ATM but report the problem promptly.

- Watch your surroundings while entering sensitive codes of information at an ATM or on a telephone keypad and ensure you enter sensitive pieces of information with touch-tone and not voice entry; hide what you type on a keypad from others who could look over your shoulder.

- Do not use wireless or cellular phones to talk about sensitive information, instead use a wired phone connected to the ground or encrypted internet access for financial transactions.

- Shred credit-card receipts, used checks, junk mail and other such documents, as they may contain private information.

- Be careful never to give out personal information in response to telemarketers and delete all e-mails that claim to be from your bank or any other financial services provider asking you to log in using a hyperlink embedded in the e-mail message. If in doubt as to the legitimacy of such requests, make it a point to use a telephone to call marketers or financial providers back rather than directly responding to the telemarketer or company that called or emailed you. Such theft of crucial identity data is called phishing and is on the rise in today's internet age.

- While shopping online, make sure the company is one of good repute and displays an approved security symbol. Also, make sure you log out of the site when you are done with the transaction.

- Watch your surroundings while using a credit card at any checkout counters or similar places as some tech savvy identity thieves use cell phones with cameras to steal others' credit card numbers and expiration dates. This is the reason why certain stores now prohibit taking pictures and videos without consent from the management.

- If you know you already are a target, keep copies of police reports and records of who you talked to and when handy, so that you can use these to back up the claim of fraud. Individuals who consider themselves at higher risk of identity fraud should consider purchasing commission-based credit monitoring services, which will notify you of any unsolicited new accounts or credit inquiries that are being made on your behalf.

- Limit the amount of personal information you publish on the web; small fragments of vital information here and there could be enough for someone to impersonate you in many ways. Be especially careful with information used as security keywords for banks, like your mother's maiden name and give your bank a different word or a password instead of the real maiden name.

- As a rule, do not divulge personal information such as date of birth to organizations that have no requirement of it; nearly all commercial organizations come under this bracket.

- Avoid routinely carrying identity documents unless obliged by law to do so.

- Restrict persons from copying your identification documents. If commercial organizations require you to submit a copy as a condition of doing business either refuse to do business with them, or retrieve the copy when your business ends and a written statement that they have not taken further copies should also be obtained.

- If someone calls you claiming to be from one of the financial institutions you do business with asking for personal information, as a rule do not give it to them. After asking them why they require the information, hang up, and then call the institution back using contact information from a source other than the caller.

- As a general rule, avoid doing business with those that come to you. This could be anything ranging from tele-marketing or tele-charity-donations, to offers in E-mail-which is usually categorized as SPAM, to door-to-door solicitation, and so on. If you want something, its safer if you find the business or company.

- When asked for your mother's maiden name, do not supply your mother's maiden name. Instead supply a different password for each company requesting this information, and make it understood that the information you are supplying is a password, not your mother's maiden name.

In specific, for citizens of the United States of America:

- Avoid ordering checks pre-printed with your driver's license or social security number. If you can keep your address also off them, opt to do so.

- Avoid carrying your social security card unless absolutely required. For instance, certain state motor vehicle offices require first-time applicants for driver licenses to show their social security cards. Don't give out the number unless it is absolutely necessary or legally required by say employers, landlords etc. In states where your driver's license number is your social security number, be equally careful about who sees your license as well.

In today's world, a good credit score often goes a long way in establishing a good profile of you and hence it is imperative that one exercises extreme caution while handling all matters in connection with this. With a little caution, perpetrators of identity theft can be kept at bay and your interest protected.