If someone successfully applies for a loan or a credit card using your identity, there will be a big mess to clear up. I don’t want to downplay the hassle, there. I would be extremely annoyed if that happened to me.

However, what we hear on the news and especially in commercials for services like LifeLock (lots of lawsuits) and FreeCreditReport.com (misleading at best) is inundating us with fear that it’s almost a given that it will happen to us. The truth is, financial identity theft becomes less likely to happen to any one person with each passing year. From Wikipedia:

Identity theft complaints as a percentage of all fraud complaints decreased from 2004-2006. The Federal Trade Commission reported that fraud complaints in general were growing faster than ID theft complaints. The findings were similar in two other FTC studies done in 2003 and 2005. In 2003, 4.6 percent of the US population said they were a victim of ID theft. In 2005, that number had dropped to 3.7 percent of the population.

When listening to people tout statistics, keep in mind also that “identity theft” is a broad category that includes financial identity theft. They’re both awful, and I hope it never happens to you, but you don’t have to feel like forking over $10 a month for identity theft protection is necessary. You certainly don’t want to publish any sensitive information in the newspaper like Jeremy Clarkson did, but you should be fine with shredding anything that has, say, a promotion code, or your name already printed on it.

Here’s an excellent resource from the FTC.

And incidentally, why do the FreeCreditReport.com commercials hinge on the fact that if my credit is compromised, I won’t be able to get a good job? What does my credit report have to do with my résumé?

You’ve probably been concerned at one time or another with your credit worthiness: the somewhat squishy way that lenders determine whether you’re going to repay, for example, a home loan. I say “squishy” because ultimately, these decisions are made by human beings in a temporal landscape. We bought our house in June 2007, and if we had tried just one month later, when rules were stricter, it likely wouldn’t have happened.

Nobody is allowed to know the exact algorithm that produces your credit score, but even if we had access, it probably wouldn’t be the same from month to month.

One thing that we thought we knew was that if you have too many open accounts, it can hurt your credit score. Now, a product support manager for Fair Isaac Corp. (where the term “FICO” comes from) is answering questions at BankRate.com, and in part of the answer to the first question, he replies:

It’s just not true that you can have too much available credit. That by itself is never a negative with the score … There really is never any good reason to close an account.

You’ll probably want to read the rest of the article to get all the specifics, and see what else he says on what does and doesn’t hurt your credit score.