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It's almost a monthly occurrence: The servers of large retailers, banks, and medical facilities are hacked and customer data, including names, addresses, credit card information, and even Social Security numbers are stolen. Looking through the chronology of data breaches posted at Privacy Rights Clearinghouse can be pretty scary. There have been more than 115 incidents since the start of the year.

Having your name and contact information available online is creepy enough. When credit card details and loads of personal data are also sitting out there, well, that's financially dangerous. Why? Because hackers in possession of your Social Security number can open new accounts in your name, wreaking havoc on your credit score. And lots of things ride on that.

What's a Credit Score?

A credit score is an assigned number derived from the information in your credit report. The industry standard is set by Fair Isaac Corporation (FICO) and the scores generated by its proprietary formulas are used by most financial institutions to determine whether or not to extend a loan.

Consumers' credit reports are created and tracked by the three credit reporting bureaus -- Equifax, TransUnion, and Experian. Most consumers wind up with slightly different scores from each company because they don't always compile the exact same information. Regardless, FICO cores are always between 300 and 850.

This is just the tip of the credit score iceberg, however. You actually have dozens of different FICO scores and many more credit scores if you include all those determined by FICO competitors, such as VantageScore and CE Score. The credit score formula can also be tailored to specific situations; borrowing money to buy a boat, say, or opening a new credit card account. Moreover, new versions of the FICO formula are released periodically, resulting in new scores, even though some lenders stick with the older formats.

Exact scoring details aside, the final number is always used for the same thing -- determining if you are a worthy borrower; that is, one who will surely pay back the money or one who seems like a risky deadbeat. Your credit score also affects the interest rate and types of loans offered.

New FICO Formula.

FICO recently released the latest version of its credit-scoring model, FICO 9. The biggest change in the formula is its disregard of medical debt, unpaid and paid, when calculating a score. FICO estimates this revision will raise some scores by 25 points. The new formula may enable consumers to borrow at lower interest rates, although, as the Washington Post notes, lenders aren't required to make decisions based on FICO 9.

How to Protect Something So Important.

With your credit score forming the basis for so many critical decisions, such as qualifying for a mortgage, it's no wonder that data breaches make headline news. Someone signing up for credit cards or taking out loans in your name with no intention of repaying the debt can be financially ruinous and a nightmare to fix. To forestall such an occurrence, keep close watch on your credit reports and scores. An abnormal drop in your score or the appearance of an account you didn't open is an indication of something amiss.

  • Credit Monitoring. Many companies sell services that provide access to your credit report and score, and/or monitor your score. Our reporting on free and paid credit monitoring options revealed that many providers are subject to frequent complaints about deficient customer service, difficulty cancelling a subscription, and unauthorized charges following a cancellation. The worst offenders may be the companies that offer free scores and free access to credit reports but unilaterally sign up users for expensive subscription services. Technically, users have agreed to this, but notification appears in the (especially) small print and is, in general, a deceitful practice.
  • Before agreeing to a "free" option, try out the vetted services noted below. And remember, federal law allows you to request a free copy of your credit report, which does not contain your credit score, from each of the three credit reporting bureaus once every 12 months.
  • Free Credit Scores. Some credit card issuers, including Barclaycard, Discover, and First Bankcard, now provide free access to users' credit score and note factors that may be affecting it. Although this is a good way to keep track of your score, you may not be aware of suspicious activity until it's too late.
  • Free Credit Monitoring Services. If you're worried about identity theft and want to better understand how your score changes over time, you need something more powerful than what some credit cards provide. Three popular, and free, services include Credit Karma, Credit Sesame, and Quizzle. All three warn users when new accounts are opened in their name, provide free access to (non-FICO) credit scores, and analyze your spending and loan balances to see if you can save money by switching credit cards or consolidating loans.
  • The sites make money by selling financial products to customers. For example, Credit Sesame offers services, such as public record monitoring, unlimited daily credit score updates, and identity restoration, for a monthly fee of $10 to $15. Quizzle's upsell gives users additional credit reports or identity protection services for $8 to $15 per month. Credit Karma nets cash when users sign up for a recommended path to savings.

I Got Hacked -- Now What?

If you know or suspect that your personal information has been compromised, there are steps you can take. First, contact one of the credit bureaus and request an alert be placed on your account (the company is required to tell the other two bureaus to do the same). Then, if you haven't done so already, sign up with a reputable credit monitoring service and keep an eye out for suspicious activity. If your information was stolen while making a purchase, the retailer may also offer free credit monitoring and identity theft assistance for up to one year.

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