A new study shows that identity fraud is increasing, affecting over 13 million U.S. consumers in the past year. Big spikes were noted in 'new account fraud' and 'account takeover fraud' -- two of the most damaging types of ID theft. In addition, a series of massive data breaches at major corporations leaves consumers vulnerable to phishing and other forms of fraud. Poor password practices are a factor as well. Read on for my tips on avoiding fraud and identity theft...

Identity theft is one of the most traumatic non-violent crimes to which one can fall victim. When a crook uses your good name to commit fraud or robbery, the impact on your reputation, employability, and credit is severe and can last for years. It's even possible to find yourself arrested for crimes you did not commit. So it's important to protect yourself against identity thieves.

The telltale signs that your identity has been stolen can be subtle and go unnoticed for months, even years. Inexplicable charges on your credit card bill may be chalked up to clerical errors. Letters from creditors you've never heard of and certainly never did business with may be ignored. But eventually, an enormous credit card bill, legal papers or police show up at your door. You are denied a mortgage or a job. Then the real nightmare of proving "I didn't do it" begins.

Prevent Identity Theft

It can be maddeningly difficult to clear your name, costing hundreds of hours and thousands of dollars. That's why it's important to take steps NOW to make it as difficult as possible for a scammer to victimize you. Take action on these ten tips as soon as possible, and you'll tips the scales in your favor:

1. Check your credit report on a regular basis, to see if there is any incorrect information, or accounts you don't recognize. My article Free Credit Reports Online explains how U.S. citizens can get three free credit reports per year, and avoid the credit report scammers.

2. Shred your sensitive personal documents before throwing them away. A battery-powered cross-cut shredder can render your banking and credit card information unreadable and costs less than $30. "Dumpster diving" is a favorite, low-tech way by which ID thieves collect bank statements, credit card numbers, Social Security Numbers, and other bits of your identity from your trash.

3. Be wary of telephone solicitors asking for personal or financial information to "verify your identity." Common scams involve someone who claims to be from your bank or credit card company, claiming that there is a problem with your account. If you did not initiate the call, hang up and call the toll-free number on your statement, then ask for the security department. This happened to me recently, in the wake of the Chase Bank breaches. A person claiming to be from Chase called my unlisted number and asked for me by name. I Googled the number on the caller ID, and found that many others reported similar calls.

4. Keep important documents, such as tax returns, birth certificates, social security cards, passports, life insurance policies and financial statements secure in your home. A fireproof safe is a good idea, but remember to bolt it to the floor or hide it well. Consider using TrueCrypt or Bitlocker to encrypt your personal and financial data, in case your computer is lost or stolen.

5. ATM Safety: Make sure no one is looking over your shoulder when you enter your debit card's PIN at an ATM or point-of-sale terminal. I recommend the "two finger method" where you point two fingers at the ATM keypad, but only press with one. This makes it nearly impossible for someone nearby to discern your PIN while you're entering it. You should also be wary of "skimming" devices at ATMs and gas pumps, which can be used to steal your card information. See All About Skimmers to learn how to identify these devices.

6. Memorize PINs, account numbers, and passwords; do not write them down. And for heaven's sake, do not put such data on scraps of paper kept in your wallet, purse, or laptop case! See my related articles Is Your Password Strong Enough? and Password Managers for Multiple Devices.

7. Get blank checks delivered to your bank branch, not to your home mailbox from which they may be stolen. On a similar note, eliminate junk mail which may contain "convenience checks" and credit card offers that can also be intercepted from your mailbox. Visit OptOut Prescreen for help eliminating these dangerous nuisances.

8. Credit Cards: Check to see if your online banking service has a feature to notify you by phone, text, or email when you when a credit card transaction exceeding some threshold occurs. Also, when you order a new credit or debit card, mark the calendar and follow up promptly if it does not arrive within 10 business days. Ask the card issuer if a change of address request was filed, and if you didn't do it, hit the panic button.

9. Don't give your Social Security Number to any business just because they need a "unique identifier" for you. Instead, ask if you can provide alternate proofs of identity, such as your driver's license or birth certificate.

10. Consider placing Fraud Alerts with the major credit bureaus, so new accounts cannot be opened without your knowledge. Call and they will pass along the request to both Experian and Trans Union. Fraud alerts expire after 90 days, so you can repeat the process quarterly, or lock down your credit file with a Credit Freeze. A freeze is permanent and free (in most U.S. states) but it may interfere with loans applications, employment screening, signing up for utility or phone service, new insurance policies, and other transactions. (See this Consumer's Union guide to credit freezes.) You'll need to contact each credit bureau (Equifax, Experian, and Trans Union) to request the credit freeze.

There are plenty of common sense things you can do to protect against identity theft, but sometimes it's beyond the control of even the most vigilant. The Javelin Research Identity Fraud Report reports that there is a new identity fraud victim every 2 seconds, and found that data breaches perpetrated on large companies such as Target, Home Depot and JP Morgan Chase are a "treasure trove" of data that could be used to commit identity theft and fraud. Here's a very interesting infographic showing the major data breaches of. and what types of consumer data were affected.

What about LifeLock?

You may be considering LifeLock or a similar identity theft protection service. Although this can be helpful, no company can guarantee that identity theft will never happen. These services monitor your bank account, and look for suspicious online activity done in your name. They'll alert you if they spot any red flags and promise to help you repair the damage. But because of lawsuits filed by the credit bureaus, Lifelock can no longer place fraud alerts on your behalf. Also, all identity protection services are barred from offering Identity theft insurance coverage to residents of New York state.

It can be a nuisance to manage fraud alerts manually. But given the recent focus by scammers on new account fraud and account takeover fraud, a service such as LifeLock, Identity Guard or Trusted ID may still be useful. The downside is that most cost about $10/month, and none of them can claim to prevent all forms of identity theft.