How to Freeze Your Credit

 Megan Nye

It's an awful feeling – that dread in the pit of your stomach and the rising panic when you discover that someone else has tapped into your credit. The damage of identity theft can be significant, particularly if left unchecked. But there are steps you can take to protect yourself.

A credit freeze, or security freeze, is a vital weapon against financial fraud. It may defend you against further attacks while giving you the breathing room you need to clear up existing problems. Here's how it works, so you can decide if it's right for you.

What Is a Credit Freeze?

"A credit freeze is something that limits your access to your credit file," says Paige Hanson, chief of identity education at LifeLock, an identity theft protection service. "No one, including you, can open new accounts until you decide to lift that freeze." By locking down your credit report with a freeze, you prevent most businesses and lenders from gaining access to your credit history.

Rod Griffin, director of public education at the credit bureau Experian, says, "The idea behind a freeze is that you are blocking access to your report from a potential identity thief." It stops someone posing as you from opening new lines of credit in your name.

A credit freeze is an extreme move, but it can be a powerful means of protecting yourself against the damage of identity theft.

Who Should Consider a Credit Freeze?

If your personal information has been compromised, a credit freeze may be appealing to you. Armed with your name, address, Social Security number and other private details, a fraudster can open accounts in your name without your knowledge.

Unfortunately, there a number of ways that your personal information can be stolen. You might be one of the millions of Americans exposed after a corporate data breach. You may have fallen victim to a phishing scam. Or you may have had your info stolen right out of your home trash can.

A credit freeze may be a good idea if your daily life doesn't require occasional access to a credit report. For instance, Griffin notes that a freeze can make sense for an elderly relative who has minimal financial dealings and is at risk for fraud. And it could make sense for you if you're a victim of identity fraud who's found insufficient relief from less drastic attempts at protecting your credit.

A credit freeze comes with a number of advantages:

It adds a layer of protection to the accounts you already have open in your name.

It does not negatively impact your credit score.

It lets you use your existing accounts, open new ones, take out loans, etc. – though some of these activities will require you to lift the freeze temporarily.

The creditors with whom you already do business can still access your credit report. So if you want to request an increase to your credit card limit, you won't need to worry about lifting the credit freeze.

Initiating a credit freeze generally costs little or nothing on your end, depending on the state.

What Are the Disadvantages of a Credit Freeze?

Griffin says that the major problem he sees with credit freezes is the false sense of security that people develop when they use them. "Just because you have a freeze, it doesn't mean you're safe from identity theft." A credit freeze would be effective against only about 4 percent of the identity theft activity that's seen at Experian, he says. Remember: A freeze's only function is to restrict access to your credit report. A savvy criminal can still run up a tab on your existing credit lines or file taxes in your name.

Additionally, there can be a significant hassle associated with lifting and reinstating credit freezes – particularly if you have an active financial life. Whenever you want to give someone access to your credit report, you need to rescind the credit freeze. Griffin says that your day-to-day life may be more significantly impacted than you might think. You may need to thaw out your credit report if you're applying for a job, getting an apartment, signing up for cellular service, changing utility providers and more.

Contending with your frozen credit can cause some inconvenient delays. In addition to possibly costing you money, the process of lifting a freeze could take some time. Experian, for instance, recommends that you allow at least three days to lift your credit freeze.

In the end, freezing and unfreezing your credit – particularly if you have to do it several times or need to freeze your credit and your partner's credit – might wind up costing a lot of money, time and aggravation.

What are the Alternatives to Freezing Your Credit?

Requesting a credit freeze is a fairly extreme step to take with your credit report. And the process has its drawbacks. But Griffin says that most people won't actually need to resort to a freeze. So it pays to consider some alternatives before opting for one:

Initial fraud alert

"The purpose of a fraud alert is to verify your identity before extending you new credit," says Hanson. An initial fraud alert, or security alert, lasts 90 days and requires creditors to confirm that you're really you – typically via a personal phone call – before they'll open a new line of credit in your name. Unlike a credit freeze, a fraud alert is free and easy to initiate, as you have to contact just one credit bureau. The bureau you contact is obligated to contact the other two on your behalf.

Extended fraud alert

The Fair and Accurate Credit Transactions Act, or FACTA, allows for victims of identity theft to request an extended fraud alert, which requires new creditors to confirm your identity for a full seven years. FACTA also entitles you to receive extra free credit reports. To qualify, submit an Identity Theft Report with the Federal Trade Commission and include that report with your request for an extended alert from each of the credit bureaus.

Credit monitoring services

Many companies that succumb to data breaches offer those affected access to no-cost credit monitoring services for a period of time. Of course, if you want some peace of mind on your own dime, you can sign up for credit monitoring on your own. LifeLock and Experian's CreditWorks program both offer daily babysitting of your credit report for a fee. Even if you skip the paid monitoring, however, remember that you're legally entitled to access each bureau's report at no cost once a year.

Credit lock

A credit lock is like a credit freeze in that you freeze your credit report through each of the three credit bureaus. However, while a freeze is enacted or lifted by each credit bureau, a lock is controlled by you via your desktop or mobile device.

Protecting Existing Accounts

If you've discovered misuse of your existing credit accounts, your best bet is to file a police report and work with your cardholder's fraud department. Request a replacement card with a new number. Set up automated notifications that inform you when purchases are made. And keep a close eye on your account activity to spot unauthorized charges.

How do you Initiate a Credit Freeze?

To get started with a credit freeze, you'll need to get in touch with each of the three major credit bureaus: Equifax, Experian and TransUnion. You can send written requests via regular mail, call their credit freeze specialists or initiate your request online.

As part of the process, the credit bureau will require you to provide identifying personal information before initiating the freeze. Hold on to the documentation the credit bureaus send you after you initiate a credit freeze. The PIN and password you're given will be necessary when you want to lift the freeze.

How Much Does a Credit Freeze Cost?

In general, you can expect to pay $3 to $10 to place a freeze on your credit report. Additionally, you may incur similarly small fees for lifting the freeze either temporarily or permanently. For complete protection, you'll need to pay the necessary fees to each credit bureau when you want to freeze and unfreeze your report.

The exact amount you'll pay for initiating and lifting the freeze depends on a number of factors, including the following:

What state you live in

Your military status

Whether you're an adult, minor, incapacitated person or senior citizen (age requirements vary)

Whether you're a victim of identity theft or domestic violence

Whether you're disabled

In many cases, you may be eligible for low-cost or free credit freezes and suspensions. To find out the options available to you, choose your state from Experian's security freeze information site and read about the process and costs.

The cost of credit freezes could be changing soon. The Free Credit Freeze Act, an amendment to the Fair Credit Reporting Act, was recently proposed in the U.S. Senate. This new legislation seeks to abolish for all people the fees associated with placing or thawing a credit freeze.

Every situation is unique. "A credit freeze is just for credit-related issues," says Hanson. "There are a number of identity theft type cases that aren't revolved [around] your credit." So be sure to assess your options – and the time and financial cost – before requesting a freeze. When you do, however, a credit freeze could be just the tool you need to protect yourself or a loved one.

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