People concerned about identity theft often wonder if they should put a “freeze” on their credit. The problem is that a credit freeze doesn’t help protect you from all types of identity theft. In addition, there are some downsides to a credit freeze – things you might not have even thought about, until now.
What is a Credit Freeze?
Simply stated, a credit freeze (a.k.a. “Security Freeze”) places a lock on access to your credit report. That means that once the freeze is activated, lenders and other companies can’t review your credit, which in turn stops thieves from opening new accounts in your name.
If there comes a time when you want or need to apply for credit, you can temporarily “lift” a credit freeze, at a cost, and then replace it once you’ve obtained your credit. Using this kind of security freeze is great for people who have already been a victim of identity theft and are concerned it could happen again. However, a credit freeze has its advantages and disadvantages. Here are just a few…
Credit Freeze Advantages
- A credit freeze has no effect on your credit score.
- Even with a credit freeze, you can still access your credit report from the 3 major credit reporting agencies by temporarily lifting the freeze
- You can continue to get new credit, open new accounts, and switch utility companies, etc. as long as you lift the freeze.
- A credit freeze lasts until you remove it. However, some states only allow a credit freeze to remain for seven years. (Check here to see your state’s rules)
Credit Freeze Disadvantages
- Unless you can prove you’ve been a victim of identity theft (or are over 65), it can cost anywhere from $5 to $10 (per freeze/per lift for each credit bureau) depending upon the state in which you live.
- A freeze stops thieves from opening new accounts, but existing accounts can still be in jeopardy. You must keep a close eye on your bank, credit card and other financial accounts.
- You must activate a freeze with all three credit reporting agencies. Unlike a fraud alert (see below), placing a credit freeze at one agency won’t place a freeze at the other two.
- In many states, it could take up to 3 business days to lift a freeze, so if you need credit acceptance within that period of time, you could be out of luck.
Credit Freeze vs. Fraud Alert
A fraud alert is another way to help stop thieves from opening accounts in your name. It’s free, easy to place at all 3 credit reporting agencies and keeps access to your credit report open to you and potential creditors.
Placing a fraud alert on your credit file activates a temporary, 90-day alert that appears when a lender pulls your credit report. This alert lets them know encourages the lender to further validate your identity before opening a new account. You can place a fraud alert on your credit file whether you’re a victim of Identity Theft or just want to have it in place as a preventative measure.
Once you place a fraud alert at one reporting agency, it will be automatically added at the other two agencies. After 90 days, the alert will expire but you can renew it as often as you’d like.
So if you’re concerned about becoming an identity theft victim or have already lived through that experience, at least you know there are options for you to help protect yourself. The only question is: which one helps you sleep better at night, a credit freeze or a fraud alert?
See how other myFICO members help protect their credit at myFICO forum. You can get opinions on both credit freezes and fraud alerts and then make your final decision.
The revised Dodd-Frank Act will allow you to place a credit freeze for no fee. Find out more about the changes here.