Are you afraid of losing your identity?

Ads about the frequency of ID theft — every three seconds in America — are intended to scare the daylights out of people and to promote companies like LifeLock and TrustedID, which promise to prevent this crime. Do they work? Not entirely, and in fact much of what these companies offer is freely available to Americans through various government offices.

The one thing these companies do provide is managing the process of putting fraud alerts on credit files, which requires lenders to take an extra step before extending credit and verify the identity of the borrower. This can help protect against the worst kind of ID theft.

Now, however, the ability to put out fraud alerts is in jeopardy, an assistant director of the Federal Trade Commission’s division of privacy and identity protection, Betsy Broder, says. One of the major credit bureaus, Experian, is suing LifeLock, charging that the large-scale imposition of fraud alerts on clients’ files is illegal.

Assuming that the protection companies prevail, on balance, the threat of being tied in knots financially and legally is serious enough, and the paperwork needed to defend against this assault so annoying that engaging one of these services may make sense.

The Federal Trade Commission reported that in 2005, 8.3 million Americans, or 3.7% of all adults, experienced some form of ID theft. While the majority of these incidents cost less than $500, in 10% of the cases the thieves made off with at least $6,000. And while most of the victims experienced almost no out-of-pocket expenses, 10% of those robbed lost at least $1,200.

Of the more than 8 million victims of ID theft, 1.8 million stemmed from the opening of new accounts or other frauds perpetrated using personal identifying information. It is this category that is potentially the most alarming and most costly.

Scott Mitic founded TrustedID in 2005 to help people prevent this kind of intrusion after his wife had her identity stolen. “Two-thirds of the thefts involve fraudulent credit card usage, and the vast majority of these people can solve the problem themselves,” he says.

“More troublesome is when someone opens an account in your name, and you don’t know that it’s even happened. The first time you hear about it is 90 days after the credit card has not been paid, and the company tracks you down,” he added.

Mr. Mitic blames illegal drugs for much of the recent rise in identity theft. “Methamphetamine addicts get a 72-hour high, during which they have hyperactive minds and great attention to detail,” he says.

In other words, meth addicts have no problem reassembling credit card receipts or other documents that have been shredded. He cites statistics showing that the greatest incidence of ID theft is taking place in known meth centers, which includes most urban areas. Unfortunately, the practitioners are getting more sophisticated all the time.

“Credit cards are low-hanging fruit. The thieves are getting cleverer and moving up to refinancing homes or buying a car in your name and then selling it,” he says.

Thieves can access accounts with information picked up from a lost purse or from children’s activities online. Another common source of stolen data is rogue employees, who may make an extra imprint of a customer’s credit card while filling the gas tank.

The single most important and valuable identifying item, and one that should be guarded most jealously, Mr. Mitic says, is one’s Social Security number. “I flatly refuse to provide my Social Security number unless I am asking for credit or the U.S. government is asking (or my employer). I have my own fake number that I give out if people insist,” he says.

However, prudence means more than concealing your Social Security number. “The most important thing a consumer can do,” Mr. Mitic says, “is to control who has access to your credit reports.”

That’s where services like TrustedID come in.

In 2003 Congress passed the FACT Act, which allows a consumer to put a fraud flag on his or her credit report. Lenders are then required to verify the identity of the borrower by, for example, calling on the phone before issuing a new credit card.

“This is a very powerful way for consumers to cut the risk of becoming an identity theft victim,” Mr. Mitic says. “Also, you can freeze your credit report so that no lender can access it without calling and getting your permission. The credit bureau will tell them that the file is not available.”

However, Ms. Broder points out that “consumers are only entitled to place fraud alerts on their files if they have a reasonable suspicion of being at risk.” This includes if they’ve had a wallet stolen.

“It is not meant to be a prophylactic measure,” he says.

Of course, that is how TrustedID and others have used them; hence, the lawsuit.

The fraud flags expire every 90 days and need to be reinstated. The request has to go to each of the three major credit bureaus separately. According to Mr. Mitic, the financial services companies lobbied for the automatic expiration to facilitate easy issuance of credit cards. The nuisance factor in keeping up with the expirations is a selling point for LifeLock and TrustedID.

Mr. Mitic claims the service TrustedID and a few similar firms provide is superior to the monitoring services offered by the credit bureaus.

“That’s a poor way to be proactive,” he says. “What you really need to know, if you buy the monitoring service, is, how good is the cleanup team? Our restoration services teams are rarely used.”

Rarely, but occasionally. “One in 50,000 of our customers will become an identity theft victim,” Mr. Mitic says. The bad news? “The thieves are getting smarter.”

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