Ask Sindie: To you, it's a pile of rubbish. To fraudsters, it's a goldmine

I have spotted strangers rummaging through the rubbish bags outside my block of flats a couple of times recently. The bags are kept well away from the street and I suspect that the rubbish is being searched for information about residents.

I don't want to alarm my neighbours but I'm concerned that somebody might be looking for bills or letters with financial details on them to use for their own gain. Should I inform the police?

JW, north London

Identity theft is big business and, despite its unsavoury name, "bin raiding" can offer sweet rewards for those prepared to sift through our rubbish for personal financial information.

Last December, an investigation into identity theft was carried out by Camden Council in north London and the credit reference agency Experian. It revealed that fraudsters were paying £5 for each piece of financial information gleaned from the dustbins of local residents and small businesses.

More alarming, the investigators found that people were unwittingly helping the criminals by throwing away confidential correspondence and other documents. Discarded driving licences, mortgage application forms and mobile phone contracts nestled in the detritus along with credit and debit card receipts listing card numbers and expiry dates. That was on top of household bills and even junked passport applications, which yield nuggets such as birthdays, maiden names and previous addresses.

"These were very rich pickings - people throw out the most unbelievable things," says Bruno Rost of Experian. "The information that such documents gives out is very valuable. To apply for finance, you need only two documents giving proof of address and two of identity.

"On the web, you can get a lot of information to draw up [fake] documents."

The theft of our IDs might sound like science fiction but it's happening here and now, with costly consequences. The fraud is chillingly simple: after stealing your financial details, an individual purports to be you and usually embarks on a spending spree by applying for credit cards, tickets and goods, either online or over the phone.

Debts stacked up in your name will then begin to threaten your credit rating. You will run into problems if you try to take out a loan or apply for credit, or if you want to remortgage, and it can take months to prove it wasn't you who made the fraudulent transactions.

The tab for identity theft - £1.3bn last year - is picked up by lenders. The Credit Industry Fraud Avoidance System (Cifas), set up to help curb fraud, calls ID theft "Britain's fastest-growing crime" and warns that the number of cases is rising by 30 per cent each year. Around 20,000 were recorded in 1999; this figure rose to 101,000 in 2003 and is expected to top 130,000 this year, says Peter Hurst, chief executive of Cifas.

"Even if we put aside the financial impact, the [knock-on effect of this crime] should concern everybody. The money finds its way into serious crime - drugs, prostitution and illegal immigration."

Two weeks ago, Cifas launched an awareness campaign to alert consumers to the risk of identity fraud. Similar drives have been started by police forces across the UK in the past 18 months.

In your case, there may be nothing to worry about but it's better to be safe than sorry. Call your bank to check if there have been any unusual debits from your account in the past few weeks, or contact a credit reference agency.

It costs £2 to order a copy of your file by post from one of three agencies, Equifax, Experian or Callcredit (see addresses below). More than a million requests were made last year to see what information these hold on us.

If you find any spending you don't recognise, report it to the police, who will give you a crime number. The credit reference agency can then flag the relevant entry in your records so that it does not adversely affect any applications for credit made by you while an investigation is in place.

There is much you can do yourself to prevent identity fraud in the first place. Mr Rost recommends buying a shredder for all your unwanted personal documents. These cost as little as £10 but you'll need to spend at least £30 for a sturdy machine that will do the job properly.

Mr Rost also suggests you tell your local Neighbourhood Watch scheme, if there is one, and the police that you suspect your rubbish is being targeted by fraudsters.

Always check your bank and credit card statements for any entries that look unfamiliar. And when you move house, make sure you redirect your post to your new address. The Royal Mail's redirecting service lasts for at least 12 months and costs £33. You can obtain a form at your post office or by phoning 0845 774 0740.

Contacts: Equifax, Credit File Advice Centre, PO Box 1140, Bradford BD1 5US; Experian, Consumer Help Service, PO Box 8000, Nottingham, NG80 7WF; Callcredit, Consumer Services Team, PO Box 491, Leeds LS3 1WZ

If you need help from our consumer champion, write to Sindie at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS or email sindie@independent.co.uk. We cannot return documents, give personal replies or guarantee to answer letters. We accept no legal responsibility for advice given.