A security freeze, also known as a credit freeze, blocks third-party access to your credit. This “freeze” provides an extra layer of security against identity theft, protecting you, your money, and your credit.
Credit freezes, however, only protect against a small percentage of identity theft attacks; they are certainly not free–unless you already are an identity theft victim–and can be a royal pain in the neck to thaw and refreeze, like when you actually need a creditor to check your credit without running into an ice wall.
As with most financial decisions, a credit freeze has its pros and cons. Here a few FAQs that will help you decide whether a credit freeze makes sense for you.
What is a credit freeze?
A credit freeze is a request you make to all three credit bureaus (TransUnion, Equifax and Experian) to block third parties from accessing your credit file. Once a credit freeze is in place, potential creditors who try to see your file will just see a message indicating your file is frozen.
How does a credit freeze work?
Most creditors require a credit inquiry, also known as a “hard pull” on your credit report before they will even consider doing business with you. Property owners, credit card companies, banks, certain utility providers, and employers use credit reports to screen new clients. This is usually seen as a nuisance because many hard inquiries into your credit file are known to affect your credit score.
The silver lining to credit inquiries is that without access to your credit report, most creditors will not give you the time of the day–let alone a line of credit. This, in turn, makes it difficult (if not impossible) for identity thieves to try to open new credit accounts in your name.
How do you place a security freeze?
The fastest way to place a security freeze on your credit file is to go to the websites of the three credit bureaus and file a credit- freeze request form. Only you can request a credit freeze on your file so you will need to provide personal information, such as your Social Security Number, date of birth, and both your current and former address to prove your identity.
The cost of adding a credit freeze ranges from $3–in Georgia, Montana and Nebraska–to $10, depending on which state you live in. The good news is that it’s free in all states to add, lift or remove a credit freeze if you’re a victim of identity theft and you have a police report to prove it.
How easy is it to lift or permanently remove a credit freeze?
Temporarily lifting or permanently removing a credit freeze is just a matter of contacting the credit bureaus, filing a request form and paying a $2 to $10 fee, if you live in a state that allows the charge. Certain states such as Virginia, Tennessee and North Carolina do not charge a fee.
The downside? Lifting or removing the freeze can take up to three business days to process and you generally can’t request it during non-business hours or on weekends. This means that requesting credit on short notice is a no-go–you’ll always need to plan ahead before filling out a credit application. Some see this waiting period as a way to safeguard against impulse buying and overspending, so it could be considered a bonus.
*If your business or employer requires regular credit checks that would have you constantly lifting and placing credit freezes, this method may not be practical for you.
What are the odds of credit fraud?
The chances you will be a victim of credit fraud are shockingly high. In 2013, an estimated 16.6 million people– 7 percent of U.S. households–were victims of some type of identity theft. If your household income is higher than $75,000 the odds you will fall prey to identity theft rise to 10 percent. Every year this costs Americans over $24 billion.
If you were one of the millions part of the data breach last year, check out 10 Steps to Take If You Shopped At Target.
Are credit freezes effective against credit fraud?
As mentioned, a credit freeze will make it difficult for identity thieves to open a new account in your name, but it will not stop them from using your current accounts. Unfortunately, according to the Bureau of Justice Statistics 2012 Victims of Identity Theft report, 85% of identity theft incidents involve the fraudulent use of existing account information, such as your credit card or bank account details. In these cases, credit freezes don’t help at all.
However, in 2012, 1.1 million consumers had their personal information used to open a new account. In their cases, a credit freeze would have probably shielded them from fraud.
A tool, but not complete protection.
Although credit freezes are not for everyone and they certainly don’t provide complete protection, they are a tool to consider when fighting identity theft, particularly if you rarely need a credit application or suspect your information has already been compromised.
Nevertheless, there are other arrows in your credit protection quiver you should also consider: An extended fraud alert, for instance, is always free and allows creditors to access your report as long as they verify your identity first.
Stay tuned for our follow up post on the ins and outs of an extended fraud alert.
This article was written by staff writer Andrew Latham. His mission is to help fight your evil debt blob and get your personal finances in tip top shape.
Photo: Credit.com, Daily Finance, Go Banking Rates