Account And Loan Consolidation

One of the great strategies to reduce the risk of identity theft is account and loan consolidation. We can reduce the risk of identity fraud and abuse of our existing accounts through account and loan consolidation and combination of existing accounts. If you’re like most people, you probably have a bunch of loans or even unused credit accounts in a variety of forms such as credit cards, store credit accounts, mortgage, home equity line, car loan or multiple car loans, student loan, boat loan, and motorcycle loan. I’m not very creative when it comes to loans as I mainly use a credit card for some purchases and pay off the balance at the end of each month. But, I’m sure there are many forms of loans, which if used properly and considered for account and loan consolidation, can improve bottom lines in certain situations and for certain people in addition to reducing the overall risk of identity fraud.

Although I indicated there are virtually many types of loan accounts, which should be considered for account and loan consolidation, these accounts could be active or inactive and have positive balance or be zero balance. Depending on the nature of these accounts, an account and loan consolidation effort may make more sense in some cases than others.

Active and inactive accounts

I consider active accounts to be the ones that we use regularly or at least once a month in order to generate a new transaction and payment during each and every cycle. As I said, I mainly use one credit card for some purchases but I use it every single month and review its activities and account transactions online multiple times a week.

On the other hand, inactive accounts are the ones that we opened in the past for many reasons and forgot all about them. For example, some of us may have credit cards, which we don’t use but keep them open any way for rainy days and emergencies. These inactive accounts may have a zero balance or a positive balance for which we make regular and fixed monthly payments. These inactive accounts can be in any form and shape but are probably mostly in the form of a credit card or other types of revolving accounts with fixed monthly payments if they have a balance. I consider inactive accounts to be much more dangerous when it come to identity fraud than active accounts because we tend to regularly review active account statements and activities to detect errors before we make payments but we hardly ever pay any attention to inactive account balances and transactions which are the accounts we opened at some point but don’t use them on a regular basis. These are the accounts that should be seriously considered for account and loan consolidation.

What are the risks?

There are many risks associated with inactive accounts but mainly a) we decrease preventive controls by keeping these inactive accounts open and allow for unauthorized use, and b) we inherently reduce detective controls because we tend to not closely monitor zero balance and inactive accounts.

As I indicated, because a number of this type of accounts are open with an available credit limit, the risk of identity fraud increases with each and additional open line of credit under our names.

The detective controls are also reduced because we expect a) no new transaction, b) to pay a fixed monthly payments and c) no monthly statement if the balance is zero. The result of our expectation is no monitoring on our part of the account balances and transactions. Let’s explore how the results of our expectations can increase the risk of identity fraud.

First, fixed monthly payments for a one time loan that was transacted a long time ago, which we are expected to pay month after month, hardly ever changes. Even, if a new unauthorized transaction was added to the account, the minimum monthly payment may not change much to warrant our attention depending on the type of account. For example, a $500 transaction on an interest only home equity line of credit at 5% interest may just add $2 to the monthly payment, which is not large enough to attract our attention.

Second, because we expect no new transaction or monthly statement due to zero balance and inactive accounts status, we do not tend to monitor account balances and transactions. This is particularly disturbing because we expect not to receive any statement, as we are not aware of any known transactions. Notice I say, “known” because if thieves changed the address on the account and then went shopping with your card, you will not know about these unauthorized and “unknown” transactions as the statement is now going somewhere else. You will not even be alerted by the fact that you do not receive statements because that’s what you expect as you are not aware of any transactions and you will not know until you review account activities.

The solution

First, account and loan consolidation is a very good idea for these inactive accounts which are no longer monitored because it forces us to decide which ones we want to keep and close the unwanted accounts, thus reducing the number of accounts that remain open, unchecked, and vulnerable.

Second, even if you decide not to consider an account and loan consolidation, I suggest placing an account freeze on inactive accounts when possible. An account freeze can be placed on existing accounts by calling the company and is usually used to stop its use during extended vacations or out of the country trips but could also be used as an identity theft prevention tool for inactive accounts. Many people consider an account freeze for their mobile phones when they don’t expect to use them for a lengthy period of time. It is really a good idea for cell phones because not only it prevents unauthorized use but also the phone company credits the period for which the phone was disabled.

Lastly, monitor account balances and transactions frequently whether the account has a zero balance, fixed monthly payment, or no activity as far as you know. And, always follow up with the company about missed periodic statements, which may be an indication of changed address and identity fraud.

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