NEW YORK (MONEY Magazine) - Know where you're vulnerable and mount a sensible defense. There are many easy things you can do to protect your identity.

Think of your Social Security number as the key to the kingdom. Anyone who has it can easily open an account in your name. Give it out as seldom as possible, and don't carry your Social Security card in your wallet.

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Worry about the right stuff Having your identity stolen online may sound scary, but the real risks are decidedly more low tech (like a lost or stolen wallet). In addition, friends, relatives and neighbors make up half of all known ID thieves, according to Javelin Strategy & Research, and their crimes usually involve more money than fraud committed by strangers. Most common sources of ID theft    Lost or stolen wallet, checkbook or credit card  28.8%  Online  11.6%  Someone you know  11.4%  Offline transaction  8.7%  Employee  8.7%  Mail theft  8.0%  Garbage  2.6%   Note: Among cases in which the cause is traceable.  Source: Javelin Strategy & Research, 2005.

To thwart thieves who go into your mailbox or trash (what's called Dumpster diving), call 888-5OPTOUT to put a stop to credit-card offers in the mail, tell your bank not to share your information and elect to receive and pay bills online.

Make a cross-cut shredder your last line of defense. In a MONEY field test of five machines that ranged in price from $40 to $380 ("Let It Rip,"), the $130 Fellowes eight-sheet cross-cut shredder (model PS-60C) won. A great all-around machine, it eats old credit cards as well as paper.

Banking online is safer than you may think -- and becoming even more secure. Federal regulators recently ordered banks to tighten their online security by the end of 2006, requiring more than just a password to log on. Some financial services companies, including E-Trade and Bank of America, already offer this two-factor authentication, but you may have to sign up for it.

If the extra security isn't yet an option, make sure your password is a random sequence of letters and numbers. Never respond to e-mails that ask for your personal information (what's called phishing). Instead, contact your bank directly.

The new frontier in phishing is the wireless Internet connection. When you attempt to log on to your bank in a public place, explains Internet security expert Richard Rushing, an ID thief can capture your data by misdirecting you to a fraudulent network and recording your keystrokes.

Credit monitoring services scan your credit reports and alert you to any changes daily or weekly, from a new account to a new address. For that, you will pay $25 to $60 a year, or even $150 or more for services that include theft insurance, score analysis or counseling to rebuild your good name. But most people can handle monitoring on their own.

The exceptions: You've already had your identity stolen and worry that your personal information is still floating around, or you run a business that needs frequent cash infusions and can't afford any credit glitches. Or maybe a monitoring service is the only thing that will let you sleep at night. In any of those cases, a no-frills service that covers one bureau is enough and should cost no more than $50 a year.

No one should let too much time pass between glances at a credit report because creditors value recent behavior more highly than ancient history. If you're smart about it, you can get a free report three times a year from AnnualCreditReport.com. Simply order a report from a different credit bureau every four months.

Most ID frauds are simple shopping sprees with your credit card (or the number). In those instances, federal law limits your liability to $50, and major credit-card issuers won't charge you at all. The pitch for ID theft insurance is that a policy will cover the costs you incur to restore your identity, such as legal fees and lost wages if you miss work.

The majority of victims, however, have no out-of-pocket losses, according to the Federal Trade Commission. For the few who do, the damage averages about $500, a small loss compared with the $25-to-$70-a-year premium. Plus, your homeowners policy may cover identity theft already. Bottom line: You don't need this insurance.

Step 4: Repair your credit