With headlines about data breaches and government agency audits, some people are freezing their credit. In fact, around 10% to 20% of consumers have credit freezes in place, according to the U.S. PIRG Education Fund.
But should you freeze your credit? And what do credit freezes actually do to protect you? Learn all about what credit freezes can and can’t do to safeguard your identity and protect you from fraud.
What is the definition of freezing your credit?
Freezing your credit means that you are blocking potential lenders, creditors and other institutions from accessing your credit reports. Since pulling your file from one of the three main credit bureaus – Experian, Equifax, or TransUnion – is typically how companies determine if you’re eligible for their products, the freeze essentially prevents new lines of credit from being opened.
People usually initiate a credit freeze as an identity theft prevention measure.
What a credit freeze prevents and what it doesn’t
Credit freezes prevent hard pulls of your credit reports, and by extension, new credit and loan accounts cannot be opened with a freeze in place. But they don’t block everything. For example, some entities are not bound by freezes such as insurance companies or lenders with which you already have accounts. Law enforcement is also allowed access to your files for investigative purposes, regardless if you have a credit freeze in place.
The other thing to keep in mind is that a credit freeze cannot prevent identity theft or fraud – it just stops the credit check. So while it can be a helpful layer of security, a criminal could potentially use your identity to do other things that don’t require a credit report, such as create a fake ID, impersonate you online, or open accounts that don’t use credit checks. And, fraudsters may still be able to gain access to your existing accounts.
➤ SEE MORE:Why do credit checks hurt your credit score?
How to freeze your credit
Freezing your credit is a simple and free process that you can do directly with the three credit bureaus. Experian, Equifax, and TransUnion each have credit freeze tools on their websites and apps so you can make the request in a few clicks. You will have to create an online account with each. You also have the option to call the credit bureaus or put in a request by mail if you prefer.
When you want to unfreeze and refreeze your credit, you will follow the same process with the bureaus.
What happens when you freeze your credit
When you freeze your credit, your account is flagged so that when a lender attempts a hard inquiry (a request to see your credit file), it will be told that your account is blocked.
Even if you are the person applying for a credit product, that application will not be able to move forward unless you take the step of unfreezing your credit.
What’s the difference between a freeze and an alert?
Credit freezes and fraud alerts serve different purposes in managing your credit. A credit freeze blocks access to your credit report, making it significantly harder for identity thieves to open new accounts in your name. You can initiate and lift a credit freeze yourself at any time.
A credit alert is a notification to the credit bureaus to prompt anyone requesting your credit file to ask for additional identification or verification. A basic fraud alert lasts for one year. Unlike a credit freeze, you only have to request a fraud alert with one credit bureau, and it will automatically be applied to the other two on your behalf.
For serious situations in which you’ve filed a police report or a Federal Trade Commission identity theft report, you may request an extended fraud alert. This lasts for seven years, and also removes you from unsolicited prescreened credit offers.
Alternate ways to protect your credit without a freeze
Although a credit freeze can provide some peace of mind, there are other measures you can take to protect yourself.
Use a digital wallet rather than physical cards: When you use your mobile device or services like PayPal to make a payment, it adds a layer of encryption and tokenization, meaning your actual card account numbers are not transmitted. This makes it more difficult for your data to be stolen.
➤ SEE MORE:Are credit card numbers on their way out? A look at the latest trends
Set up text/email notifications for bank/card transactions: Practically all banks and credit accounts offer the option to set up customized text or email alerts to let you know when certain types of account activity are taking place. Should something come across that you don’t recognize, you can get on the phone with your credit card company or bank immediately to report suspected fraud.
Don’t leave physical mail lying around, or throw it out without shredding: Even with more advanced digital identity theft, there are still people who steal information the old-fashioned way – by going through people’s mail. It’s very easy for a service person to snap a photo of your bank statement if you leave it on your counter, for example, or for someone to rifle through your trash if you throw away unopened credit card offers.
Frequently asked questions about freezing your credit
How long does a credit freeze last?
A credit freeze lasts for as long as you leave it in place. The only way to remove a credit freeze is if you request to do so.
Does freezing credit affect credit score?
A credit freeze does not have any impact on your credit score. All it does is provide limited access to your file. Your score will continue to reflect your account activity and credit history.
Is a credit freeze better than a fraud alert?
Credit freezes and fraud alerts can both be effective depending on your situation. A freeze offers a higher level of security since it blocks access to your reports, whereas an alert requires the lender to take extra measures to verify your identity. Credit fraud or identity theft victims may opt to use a fraud alert while someone who doesn’t plan to apply for new credit any time soon might take the extra step and do a credit freeze.
The bottom line
Credit freezes can certainly cut down on the risk of someone opening accounts in your name, but just remember that they aren’t 100% failsafe, and can be inconvenient if you’re someone who applies for credit products on a regular basis. But if initiating a credit freeze gives you peace of mind, go for it. Just remember to unfreeze as needed, and use it alongside other best practices for protecting your information.
