First, I reported all the credit cards in my wife's purse stolen and had them cancelled. Then I moved on to the bigger issue. I knew that the thief, having gained possession of various forms of official identification, had enough ammunition to open charge accounts in the names of my wife and kids. So I went on line and tried to "freeze" all three of their credit files. Each of the three major reporting agencies, TransUnion, Equifax, and Experian, allowed me to freeze my wife's file, but none of them would let me do the same with my children's accounts. I never got a good explanation for why at the time. (Note as of October of last year, at least Equifax allows the freezing of a child's credit by a parent. The hope is that the other agencies will follow suit).
If you're familiar with the concept of a credit freeze, you already know that it is the most drastic measure taken to protect your identity. The concept is pretty simple. Once you implement the freeze, which should be done with all three agencies if you decide on that course of action, no new credit can be opened in your name without first "thawing" your file, which would require the proper credentials, including the PIN number issued at the time of the freeze. Should you need to apply for credit, you can unthaw (either permanently or temporarily) your file. Ideally, you would ask the creditor which reporting agency they used and unthaw only that file while the application was being processed.
Less drastic is the fraud alert, which allows you to request notification any time an application for credit is taken out in your name. This method isn't foolproof by any means though as an enterprising criminal might have a contingency plan in place to overcome those hurdles.
Again, I opted for the freeze in my wife's and kids case. It seems to have worked out so far.
Several years later, after having read about a rash of mass identity thefts, I signed up for Life Lock, which is a credit monitoring service. For $10 a month, they monitor your credit file and report any suspicious activity to you. Their service comes with a guarantee that the company will spend up to a million dollars helping you clean up the mess if your identity is stolen after using their service. Is it worth it? To me it is, but there are cheaper alternatives. See the article below from 20somethingfinance.com for a pretty thorough review of Life Lock:
A Lifelock Review:
Benefit Claim: Identity Threat Detection and Alerts
Benefit Claim: Reduced Pre-Approved Credit Card Offers
Benefit Claim: Credit Reports and Credit Score Access
Benefit Claim: Black Market Website Surveillance
Benefit Claim: Lost Wallet Protection
Benefit Claim: The famous “$1 Million Total Service Guarantee”
Count me among the people who would just as soon have Life Lock do all the work. If you're not one of those people, but still want the peace of mind, the article above provides you with pretty much everything you need to know to effectively do it yourself.