I just finished putting a freeze on my credit files as a protection against Identity Theft. I have to say I feel a lot better.

The idea is that I've locked my files at the big-three credit reporting agencies so they cannot be viewed by anyone unless explicitly authorized by me. This effectively prevents anyone else from opening new lines of credit in my name, which is the big thing to worry about with ID theft.

Setting this up was inexpensive, but it wasn't free, and it's going to be a minor pain in the ass if I ever want to get a loan or a new credit card. I got to wondering whether it was actually worth it from a risk/reward perspective.

Odds of falling victim to ID Theft: 1%

• Estimated number of Americans victimized by identity theft in 2004: 9,000,000
• Estimated number of Americans: 300,000,000

So that's a 3% chance/year. I'm going to bump it down to 1% because

• I imagine many of those cases are relatively minor
• I'm probably more careful with my info than many people
• I want to be conservative in my estimates.

Estimated time spent in recovery: 100 hours

This is an estimate of the amount of time I'm likely to have to spend restoring my good credit once a thief gets a hold of it. Early surveys put the number at about 80 hours; more recent surveys put it at 500 hours or more. Again, I'll be conservative and say 100 hours.

Value of time spent in recovery: $200/hour

How much would I have to be paid to endure the Kafkaesque experience of restoring my good name? It makes me ill to even think about it. $200/hour is definitely conservative.

Total cost of having identity stolen: $20,000

I'm not going to factor in net out-of-pocket expenses. I've read estimates ranging from $50-$2500 - negligible compared to the lost time. This gives me a conservative estimate that it will cost me $20k to have my identity stolen.

So, in a given year, there is a 1% chance that I will have to pay $20k. If I do the a security freeze, there is 1% chance that it will save me $20k. The security freeze is effectively paying me $20k with 1/100 odds.

Cost to play: $100

Not very good odds, but what does it cost to bet? Turns out, not very much. In California, you can freeze your credit report for a total of $30, plus some photocopying, stamps, and a little bit of time. Call it $50. It also costs about this much to temporarily unfreeze your reports when you need to get a new credit card or something. All told, lets call it $100/year - again, very conservative.

Conclusion: Security Freeze is a Smart Bet

So, the pot is paying 200:1 ($20,000/$100) but we are only a 100:1 underdog to win. Clearly, the security freeze is a good bet, paying 2x. And again, this based on very conservative estimates; I think it could easily be paying 4x or 8x.

Moreover, there's also the intangible satisfaction I'm getting from denying a bit of revenue to the credit reporting bureaus. These guys make insane amounts of money selling our information to banks and other would-be creditors. Not only do they not share that revenue with you, but they actually pass the costs of protecting yourself against ID theft on to us - an absolutely ridiculous state of affairs. As far as I'm concerned, sticking it to the bastards at Equifax, TransUnion, and Experian, even in a small way, is worth the price of entry by itself.

In any event, until we have national representatives who have the backbone to fix the problem, you're best off putting your money on the security freeze.

For more information on freezing your report in California, go to http://www.privacy.ca.gov/sheets/cis10securityfreeze.htm .