Raise your hand if you’ve been feeling the desire to put your credit on lock-down — and if that desire grows stronger with every new data breach that’s broadcast on the news. It’s a tough world out there when it comes to identity theft, and it’s not getting any easier. However, there is a tool that can help you: the credit freeze. So, what is a credit freeze, and how can you get one? Read on to find out.
What Is a Credit Freeze
A credit freeze is designed to prevent someone from opening a new credit account in your name. But how?
When you apply for credit, the company evaluating your application will generally view at least one of your credit scores and credit reports. The score gives them a high-level understanding of how well you manage credit. Your credit reports spell out your current and past financial obligations, as well as how you handle them. But if you freeze your credit reports, it limits who can view them.
Here’s what the Federal Trade Commission has to say about credit report freezes:
“… this free tool lets you restrict access to your credit report, which in turn makes it more difficult for identity thieves to open new accounts in your name. That’s because most creditors need to see your credit report before they approve a new account. If they can’t see your report, they may not extend the credit.”
The credit freeze is a great tool for anyone who thinks they might be at risk of identity fraud. And, thanks to the Economic Growth, Regulatory Relief, and Consumer Protection Act, credit report freezes are now free to all who wish to have it.
What Can and Can’t Happen While Your Credit is Frozen
It’s important to note that a credit freeze only restricts people from reviewing your credit report and hinders their ability to apply for new credit in your name. A credit freeze doesn’t stop your credit report from evolving along with your current financial activity. In other words, your creditors will still report your payments and other relevant data while your credit reports are frozen.
Here are some things that can still happen while your credit is frozen:
- Your existing creditors can make changes to your revolving lines of credit
- You might receive prescreened credit offers in the mail
- You can regularly check your credit reports
- Your current creditors will send account updates to credit reporting bureaus so that your credit reports remain current
And here is what can’t happen as long as your credit is frozen: Creditors generally can’t review your credit reports in order to approve or disprove an application for credit.
Keep reading for a few more facts you need to know about credit freezes.
5 Credit Freeze Facts You Need to Know
Before you take advantage of a credit freeze to protect your identity, here are a few things you should know first:
1. You Need to Freeze Your Credit With All Three Credit Reporting Agencies
There are three different companies (called credit reporting agencies or CRAs) that are tracking your personal credit usage. These companies (Equifax, Experian, and TransUnion) all maintain their own credit reports on you, so you have to freeze your credit with all three of them to ensure maximum security against fraudulent accounts being opened in your name.
2. A Credit Freeze Is Not the Same as a Credit Lock
Although a credit freeze is now a free service mandated by the law to be available to all, CRAs can also offer a “credit lock,” which is a similar service. Similar, that is, but not the same — and not free.
For all intents and purposes, these two services look the same. They both make it more difficult for new accounts to be opened in your name as long as they’re in place. But credit locks can operate differently based on who’s offering them. Their main advantage is that they can be turned off within minutes while a credit freeze can take an hour (or more if you’ve lost track of your PIN, which is a code you’ll be prompted to set while freezing your credit to ensure that only you can lift the freeze). Some services also offer notifications anytime someone tries to access your credit.
Whichever you choose is up to you, just know that the two services might look and sound the same, but only one is free and required by the law: the credit freeze.
3. A Credit Freeze Won’t Protect You From Credit Card Fraud
Although a credit freeze can prevent someone from opening new credit in your name, it won’t help if someone has gotten their hands on your existing credit card number. In that case, they can use the credit you already have.
If your credit card number has been stolen, dispute any purchases you didn’t make with your credit card company through their fraud department. They should also help you close your card and get a new one with a new number so the thief can’t continue to make charges.
The same goes for compromised bank accounts. As soon as you suspect fraud, get in touch with your bank and they’ll help you close your account or accounts and open new ones with new account numbers, debit cards, and checks.
While we’re on this topic, it’s important to know that your existing creditors can still have access to your credit reports while your credit is frozen, as can any debt collection agencies they’re working with.
Regarding the first point, your existing credit line could be increased (per your request … or that of a fraudster) during a freeze. Always keep an eye on your available credit when reviewing your credit card statement each month to make sure nothing has changed, and contact your issuer immediately if something has. And on the second point, any defaulted debt you have can still be sold to debt collectors during a credit freeze.
4. You’ll Need to Unfreeze Your Credit Before Applying for New Credit
It’s important to remember that a credit freeze doesn’t just hinder potential thieves from opening new credit in your name, it hinders anyone from doing so, yourself included. If you’ve frozen your credit and you know you’ll need to put in a credit application, “thaw” your credit beforehand so your applications can go through.
According to one of the major CRAs, Experian, it only takes an hour to lift your freeze, but it might be better to give yourself more time before applying for credit in case you forget your PIN, at which point the CRAs will need to verify your identity.
The way to thaw your credit is to use the PIN code given to you by each CRA and then lift the freeze. Once you’ve received the credit you need, you can go back and re-freeze your credit if you wish to do so.
The thing you don’t have to worry about thawing your credit for is viewing your credit reports via AnnualCreditReport.com. You can continue to view your reports for free each year even while your credit is frozen.
FREE Tool: Are there errors on your credit report? Find out and dispute them.
5. You Should Still Check Your Credit Reports After You Freeze Your Credit
Even if you’ve frozen your credit, that doesn’t mean you don’t need to keep an eye on your credit reports. For starters, credit reporting errors can happen to anyone — and they needlessly drag down the credit scores of those affected. It’s a good practice to review your credit reports at least once a year (which you can do for free at AnnualCreditReport.com) and dispute any errors you find.
Besides errors, it’s simply a good idea to know what’s on your credit report on a regular basis. Since it’s free and easy to do, there’s simply no reason not to keep an eye on your credit reports.
[Have you fallen victim to fraud or want to make sure you don’t? Read this.]