While millions of consumers continue to fall victim to identity theft each year, many are starting to fight back with new tools— credit alerts and credit freezes. Sounds effective, right? Though they are a great way to prevent thieves from opening new credit in your name, credit alerts and freezes are unfortunately not a total silver bullet. So, before you rush out to lock up your credit, read on to learn about these techniques, how they can prevent identity theft , and where they might fall short.
Freezing Your Credit - What It Means
The major credit bureaus recently changed their policies to allow anyone to lock (or freeze) their credit reports. Previously, only victims of identity theft were able to do this, except in a patchwork of states that actually passed special consumer laws due to identity theft concerns.
The basic concept of a freeze is to prevent any lender from pulling, viewing, and thus modifying your credit reports. This will mean that no creditor, be it a bank, an employer, a car salesman, or a credit card company can pull and view your credit report. It also means that you will not be able to open any new credit in your name unless you lift the freeze. In addition, when you initiate a credit freeze, you will generally receive a special PIN number, which can be used to unlock your credit at a later date.
Is this a good tool to have at your fingertips? If you are combating identity theft and do not foresee the need for any new lines of credit in the near future, it can be a blessing from above. However, if you currently suffer from bad credit and are in the process of trying to repair your credit reports, it will immediately suspend your efforts. A credit freeze definitely isn't the right option for you.
On the other hand, initiating a credit freeze can serve as an effective way to combat identity theft for many consumers. For example, a thief who has stolen your personal information and attempts to open a bank account in your name, apply for a loan, buy a vehicle, or place a fraudulent mortgage on a house will be denied credit as long as your credit freeze is active.
However, there are some pitfalls you must be aware of before making the decision to lock up your credit reports. Before considering a freeze, you should take some time to think of exactly what you will be doing in the near future. Most people do not understand how far reaching their credit reports are. So, it's important to remember that they are not only used for credit card applications and loans, but they are also used by utility companies, insurance companies, landlords and even employers when applying for a new job. Have you lost your cell phone or need to renew your contract? If your credit is frozen, you can forget that as well.
How To Activate a Credit Freeze
In order to freeze your credit reports you must get in touch with each of the credit bureaus, either by phone, mail, or email. If you have never been a victim of id theft, each will charge you a fee, between $5 and $12, depending upon where you live and the local laws that mandate caps to these fees. If you have been a victim, this cost is free, though you will have to send a copy of a police report to each bureau as proof. Depending on your local state laws, this fee is likely to be waived if you are over the age of 65 as well.
In order to lift the freeze, either temporarily or permanently, you generally have to pay the same fees. It may also take a few days for your credit to “thaw,” so if you absolutely need a new car that day, you’'ll be out of luck! Having a credit freeze in place means you'’ll have to plan large purchases well in advance, which could be a good thing for those who have problems avoiding impulse purchases on big-ticket items.
When a Credit Freeze is Ineffective
There are a few situations in which a credit freeze will not prevent identity theft. For instance, if a lender does not even bother to check a credit report, it will obviously not realize that your credit is frozen. Unfortunately, this might be the case for certain payday loan companies that don't follow correct policies and procedures. The good news is that you would have an ironclad case against any collection on a defaulted loan, since you would be able to easily prove the frozen status of your credit at the time the loan was given.
However, a greater danger is the fact that a credit freeze does not actually lock your current credit accounts. If your bank account or credit cards have already been compromised, there is no defense against this apart from contacting your credit issuer and canceling the cards. Freezes only work against the opening of new credit accounts and requests. They basically can prevent the damage from getting any worse.
How Freezing Your Credit Differs from Fraud Alerts
A fraud alert is simply a note on your file stating that you have been a victim of identity theft and must be contacted in order to confirm that the person applying for the credit is indeed you. This alert will be flagged each time your report is pulled or examined by a lender.
The problem with fraud alerts is they could easily be ignored. Although creditors are governed by law to ask for more information or "take reasonable steps" to get more information when they see the fraud alert, "reasonable steps" might mean different things to individual lenders.
Therefore, the effectiveness of a fraud alert is truly dependent on the individual creditor. If it is passed over, either through ignorance, mistakes, or simple laziness, an alert could be completely ineffective. Many just assume you are who you say you are, and do not wish to potentially lose business or use up valuable time by going through the extra step of contacting the number on the fraud alert.
However, with a credit freeze, there are no mistakes made. The lender cannot see any part of the credit report, so ignoring it is simply not an option. In this sense, a credit freeze clearly makes more sense.
To activate a fraud alert, you must call one of the three credit bureaus, and they will contact the other two for you. On the other hand, to activate a credit freeze you will need to contact each one individually and often send a certified letter with identifying information and proof of your residence. You should be aware that the rules for each bureau are slightly different.
Subscribing to an Identity Theft Protection Service
Instead of dealing with the inconvenience and paperwork necessary to initiate a freeze on your credit, most identity theft protection services, such as Lifelock or TrustedID, will also offer this service with a simple click of a button. The same fees will apply, but many consumers choose these services for both the convenience and the extra protection offered by these reputable products.
So, do you think a credit freeze is right for you? If you're afraid of somebody tampering with your credit, it's an option certainly worth considering. And if you don't mind the paperwork, extra cost, and extra effort required to freeze and then unlock your reports when applying for new lines of credit, then by all means, place a deadbolt on your credit. After all, would you leave the front door to your house unlocked year round?
