Fraud Alerts and Credit Freezes: Options Against Identity Fraud

Both fraud alerts and credit freezes are useful tools for protecting your credit. They both have the same purpose: preventing identity thieves from misusing your credit file.

It’s useful to see identity theft as an injury or disease to your credit. If you sprain an ankle, do you apply ice or heat? What if you have stiff joints or chronic muscle pain? The correct treatment will depend on the type of injury and may require alternating both heat and cold.

As with physical injuries, which treatments you chose to recover from identity theft and protect yourself from further attacks will depend on the seriousness and the type of injury.

Fraud alerts protect you by placing a red flag on your credit file. Once the alert is in place, the credit reporting bureaus (Experian, Equifax and TransUnion) will attach a fraud alert to any credit report or credit score generated using your file. This alerts signals to potential creditors that you may be a victim of identity theft.

Creditors must then follow what the Fair Credit Reporting Act calls “reasonable policies and procedures” to ensure they are dealing with you before issuing credit in your name.

There are two main types of fraud alerts: initial fraud alerts and extended fraud alerts.

In the case of initial fraud alerts the measures creditors must take to verify your identity are left to the creditors’ discretion, which some may view as an obvious Achilles’ heel. But, if you request an extended fraud alert, creditors must either contact you using a telephone number you provide or meet with you in person.

Both types of fraud alert are free and entitle you to free credit reports. Initial fraud alerts last for 90 days, while extended fraud alerts can go on for up to 7 years.

You can request an initial fraud alert any time you suspect you may have been the victim of identity theft or could be in the near future. For example, if your wallet was stolen or you’re worried you were duped into giving too much personal information, such as your Social Security number, you can request a 90-day fraud alert. You just need to call a credit bureau or fill an online form.

To request an extended fraud alert you will need to write to one of the credit reporting bureaus and attach an Identity Theft Report, a special police report that proves you have been the victim of identity theft.

Security freezes, another term for credit freezes, provide a more dramatic way of protecting your credit file from identity thieves. When you freeze your credit file, you prevent credit reporting bureaus from sharing your credit report and score without your consent. This makes it difficult for identity thieves to open new accounts in your name.

Learn more about credit freezes and how they can help you here.

The downside is they also interfere with your ability to do business with companies and institutions that require access to your credit file, such as government service companies, utilities, internet credit transactions, and mortgage and insurance providers. You will have to thaw you credit file every time you want a third party to access your file. This can take up to three business days to process. If your line of business or spending habits requires businesses or government agencies to regularly check your credit file, you may find credit freezes are simply not worth the bother.

Another inconvenience is that credit freezes are not always free. The price varies by state, but it usually costs $10 to set up and $10 every time you thaw and refreeze your file. In some states, such as New York, California and Delaware, it is free if you have an Identity Theft Report to prove you have been targeted by identity thieves.

Were you affected by the Target Breach? Here’s what to do.

Although credit freezes provide the most robust protection from identity thieves using your credit file, there are circumstances when your credit file is disclosed to third parties. For instance, government services and companies you were already doing business with before the credit freeze — such as utility companies, credit card companies, banks and the collection agencies working for them — still have access to your file.

Neither fraud alerts nor credit freezes provide foolproof protection from identity theft. In fact, they only protect you from identity thieves who try to open new lines of credit, which only accounts for a small percentage of identity fraud cases. Most fraud cases relate to the misuse of existing accounts, such as a thief using your credit card information to buy stuff online.

Credit freezes do provide more protection than fraud alerts. Much in the same way as you’re less likely to get involved in a car accident if you don’t drive. Which is fine if you don’t mind taking the bus or walking.

Credit freezes are particularly useful with people who don’t foresee many financial activities requiring access to their credit report. Some people use them as a firewall to protect the credit file of their children or elderly parents. However, if your credit file gets a lot of traffic, the delay and inconvenience of having to repeatedly thaw and refreeze your account may outweigh the additional protection.

Extended fraud alerts provide similar protection with less drama and come with additional benefits, such as two free credit reports from all three bureaus and automatic exclusion from pre-screened offers for credit or insurance for 5 years.