Corporations are mishandling your personal data, but the real threat may be closer to home. Here's how a simple paper shredder can help.
By Peter Lewis

(FORTUNE Magazine) – SHAKESPEARE GOT IT wrong when his Othello said, "Who steals my purse steals trash ... but he that filches from me my good name robs me of that which not enriches him, and makes me poor indeed." Were Othello alive today to witness the modern crime of identity theft, he might have said, "Who steals my trash steals my purse, and enriches him by filching my good name." And then the noble Moor would have set out hotly to fetch himself a shredder.

Last year, according to a Better Business Bureau report, more than nine million Americans were victims of identity theft. At an average financial loss of more than $1,000 each, not to mention countless hours cleaning up the mess of credit reports, filched identities enrich the filchers and make the victims poorer indeed.

Security experts say that, contrary to popular belief, the majority of identity-theft cases do not involve criminal computer masterminds. More commonly the modi operandi involve Dumpster-diving--going through trash cans for discarded bank statements, preapproved credit card solicitations, old bills, computer printouts, and other financially revealing documents--or the telephone, scamming gullible people into revealing their bank-account or Social Security numbers and passwords.

The truth is, the paper documents you absently toss away put your identity at greater risk than the credit card information you send online to Amazon.com or other reputable e-tailers.

That's not to say the online world is a safer place for your identity. Organized-crime groups are becoming more sophisticated at online scams like phishing and pharming, which involve sending bogus e-mails and setting up counterfeit websites to lure naive computer users into divulging private information.

More alarming still are all the cases of greedy, incompetent, and careless handling of computer files we've witnessed recently. Why would thieves endure the mess and stink of going through other people's trash when they can easily purchase 145,000 sets of names, addresses, Social Security numbers, and other juicy personal information from ChoicePoint, one of the country's largest information brokers? Then again, what's a little mustard on your shirt when a Dumpster dive might yield those missing Bank of America backup tapes containing detailed financial records on 1.2 million federal employees? And LexisNexis can't even count the number of people whose identities have been compromised by sloppy security at its Seisint division, a ChoicePoint rival that supplies personal data to the government's Matrix domestic crime and terrorism surveillance system. First they said 30,000. Now it's 310,000. And those are just a few of the known breaches so far this year.

Do you know where your identity is right now? Most people don't. In fact, you might have thrown it away, allowing someone else to use it to apply for credit cards or loans in your name, to take vacations and have the bills sent to you, or even to get a job and leave you stuck for the income taxes. Law enforcement officials say organized-crime rings seem to be hoarding names, addresses, and other purloined information for future use and trading lists of names with other criminals. After all, why rob a bank when you can take out a big home-equity loan on someone else's home? It could be as easy as going through the trash.

Using a shredder certainly won't protect you from all the risks of ID theft, but it's something tangible you can do while waiting for Congress to address the issue. Because we have little or no control over our personal information when it goes into a commercial or government database, it's all the more important to take action on things we can control. Shredding may seem a tedious chore, but it's actually quite fun, and as a byproduct, produces festive streamers or confetti that can be used next October when the Yankees win the World Series.

Small, cheap shredders are available for as little as $20, and there are many models for less than $50. But almost all the low-end shredders should be considered disposables, because they typically use plastic for at least part of their gears, and even moderate use will cause the plastic to break or wear down. They also cut paper into strips that a determined garbage hound can piece together.

On the flip side, most homes and small offices can do without the massive, chain-driven, steel-fanged, industrial-strength shredders used by companies like Enron.

When shopping for a shredder, it's worth paying extra for a durable cross-cut or confetti-cut model with all-steel gears, a big mouth, and the ability to chew up paper clips, rubber bands, credit cards, and data CDs. Higher-end shredders also have better safety features, like auto reverse and motors that shut down before overheating.

While most shredders are ugly, brutish, and short, not to mention noisy and messy, a few stand out. At home, I use the Royal 1280mx ($130), which converts up to 12 sheets at a time to confetti. Yes, someone from the CIA could probably reconstitute it, but most people won't bother to try, especially if you marinate the confetti in wet coffee grounds, banana peels, or fish oil.

Another risk close to home may be your own computer. Norton Internet Security 2005 ($70) guards your Windows-based PC against known viruses, spyware, and Trojan Horse programs, which can capture your passwords and user IDs and smuggle them back to the hackers. Norton also blocks Trojans that can turn your PC into a spam-spewing zombie; security firms say 80% or more of the spam clogging the Internet originates from infected home PCs. An alternative Windows program worth considering is Webroot's Spy Sweeper 3.5 ($30), the best pure spyware protection we've tested.

While shredders and antivirus software are good protection, it also helps to be just a little paranoid--like Othello, who added identity theft to the world's vocabulary.

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