Identity theft is when another person steals your identifying information and poses as you for financial gains.
"Once identity thieves have your personal information, they can drain your bank account, run up charges on your credit cards, open new utility accounts, or get medical treatment on your health insurance. An identity thief can file a tax refund in your name and get your refund. In some extreme cases, a thief might even give your name to the police during an arrest." -Federal Trade Commission
Source: Pictures of Money, Flickr, CC BY 2.0
One way that identities are stolen is through data breaches, like the major Equifax breach that occurred over summer 2017. Personal identifying information for many Equifax users was obtained through this hack (find out if you were impacted here) and you may want to take advantage of the free credit monitoring they are offering, whether or not Equifax says you were affected.
Data breaches happen all the time. Here's a visualization to show you. Be more wary of giving out your personal information to companies and pay attention to announcements of breaches, so that you can find out if you've been affected and set up fraud alerts or freeze your credit, just in case.
An excerpt from the Federal Trade Commission:
If you spot one of these signs, let the appropriate companies know and report your identity theft to the Federal Trade Commission, and your local police department. Freeze your credit and close your credit accounts as soon as possible with all bureaus - Experian, Equifax, and TransUnion. It's easy to freeze and unfreeze your credit, so don't hesitate! Still not sure what steps to take? This website will walk you through recovery steps based on what was lost or stolen.