Fraud Alerts and Credit Freezes

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

Extended Fraud Alert

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.

How Easy Is It To Request A Fraud Alert?

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.

Credit Freezes

Credit Freeze

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. 

Credit Freeze Exceptions

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.

The Bottom Line

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.

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.
Photos: Carrington.edu, LGFCUNewsWorks

Credit Freeze

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?

Credit Freeze

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?

Credit 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?

Credit Card Security

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?

Fraud finder600x400

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?

Credit Freeze

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