With frequent breaches of credit card data in the news these days and the increased chances of having your social security number, credit card number, or even identity stolen, it’s important to know what tools you have at your disposal should you encounter or simply want to avoid this worst-case scenario.
One of these tools, which is free to consumers, is the option to freeze your credit. While there are certainly security benefits to a credit freeze, there are also some downsides to consider, as well.
What is a credit freeze?
According to the U.S. Federal Trade Commission, a credit freeze, also called a security freeze, is a measure that restricts access to your credit report, which makes it more difficult for anyone to secure credit in your name. Most companies extending credit will want to see your credit report first, so making it more difficult to access means a fraudulent attempt would be less likely to be successful. Here’s the difference between credit reports and credit scores.
You can freeze your personal credit, the credit of children who are younger than 16, or anyone for whom you are power of attorney, guardian, or conservator.
You’ll need to freeze your credit in more than one place. “You’re able to freeze your credit with each of the main credit reporting bureaus: Experian, Equifax, and TransUnion,” advises Michael Bovee, of HelloResolve, a company that helps people resolve debt.
When should someone freeze their credit?
There are a variety of reasons you may want to consider freezing your credit. These include:
- You’re concerned your social security number has been compromised.
- You are part of a data breach.
- You’ve experienced fraudulent activity of your identity or credit such as the recent Equifax breach.
- You notice a new inquiry on your credit report that you don’t recognize.
- To protect a senior citizen or incapacitated individual for whom you are power of attorney from identity theft or fraudulent activity.
“People often decide to freeze their credit if they are concerned that they’re victims of identity theft or have been caught up in a data breach,” says Bovee. “Specifically, if you’re concerned that your social security number has been compromised, a credit freeze could be particularly prudent, as it’s arguably the most powerful piece of personal identifiable information.” Find out the 13 things credit card companies know about you.
How to freeze your credit
There are three credit bureaus (Transunion, Equifax, and Experian) that creditors may use to check your credit report, so you will need to file a freeze request with each. It’s pretty simple to do so; you provide each agency your name, address, birth date, social security number, and some additional information to set up the freeze. Each agency is required to place the freeze within one business day. There is no cost to freeze your credit.
“Once you have a freeze on your credit, you can temporarily lift the freeze, which will allow you to apply for new credit while the freeze is in place, or you can eventually completely remove the freeze,” explains Lauren Anastasio, CFP with SoFi, a personal finance company that offers student loans, personal loans, investing and more. It’s also free to do both, according to the U.S. Federal Trade Commission, and if you request a “lift,” credit bureaus are required to do so within one hour.
Additionally, credit bureaus may offer a credit “lock” service for a monthly fee, but these are not guaranteed by the federal government as a “freeze” is, according to the U.S. Federal Trade Commission. For example, Experian offers a Credit Lock service for $24.99 per month, but it only locks your Experian credit report and not those with the other bureaus.
Credit freeze downsides
There are also some reasons that you may not want to get a credit freeze. In addition to keeping identity thieves from seeing your credit, it restricts everyone else, as well. “This can include banks, lenders, employers, and some government agencies,” says Anastasio. Keep in mind, a credit freeze has no impact on your credit score, but “having a freeze on your credit can cause delays in your ability to acquire new credit,” she says.
In fact, she says that many people forget that they’ve placed a freeze on their account and become frustrated when they are turned down for new credit. So you’ll need to remember to “lift” your freeze when applying for credit or when a potential lender or employer needs to conduct a background check.
While a credit freeze has its benefits, it is not a way to alert you of potentially fraudulent activity nor does it prevent financial loss during a data breach or identity theft. What’s more, says Anastasio, “Freezing your credit is not a substitute for identity theft protection, credit monitoring, or responsibly keeping track of your credit file.” Finally, debt collectors, existing creditors, and government agencies may still be able to access your report even when you have a “freeze” in place. Follow these 11 tips to improve your credit score.