The Big Chill – Why You Should Freeze Your Credit Now That It’s Free

With data breeches affecting everyone from retailers and banks to credit bureaus, it seems like protecting your personal data has never been more important. Thanks to recent changes to the Dodd-Frank act, it is now free for consumers to freeze their credit – one of the most efficient ways to protect against identity theft and fraud.

Whether you think you might have been affected by a recent data breech, have been a victim of identity theft or are looking to secure vital information like your Social Security number, here’s why you should put a security freeze on your credit.

What is a credit freeze?

In layman’s terms, a credit freeze blocks lenders from checking a consumer’s credit report. Since lenders are unlikely to extend a line of credit without checking a consumer’s credit report, criminals are unable to profit from stolen data by opening up a new account in someone else’s name. A credit freeze essentially locks away sensitive information; it has no effect on one’s credit score, which can still go up or down whether or not one’s credit is frozen.

If a freeze is put in place, consumers can still access their own records, as can preexisting lenders and debt collectors, or government agencies acting upon a warrant or court order. Consumers can also receive their free annual credit report. Recent changes to the Dodd-Frank act also require that any time an entity views a consumer’s credit report, it must be logged. As a result, any activity that is suggestive of a fraud attempt is easier to identify.

It’s important to note that a freeze does not prevent consumers from receiving credit reports, including the new legally-mandated one free credit report per year. Being able to check your credit report free of charge at least annually is another significant step in increasing consumers’ credit and personal information security.

Why now?

Although most people haven’t asked credit bureaus to collect and store sensitive personal and financial data, vast amounts of information are available at these entities about most people. While most lenders will require a credit check before affording a line of credit – whether for a mortgage loan or to set up a new mobile phone account – recent data breech scandals have shown exactly how vulnerable these data troves are.

Considering an estimated 145 million people were affected by last year’s Equifax data breech, it is surprising that less than 10% of U.S. consumers have actually frozen their credit. Even so, prior to the new congressional law taking effect, the Equifax breech spurred consumers to spend $1.4 billion on credit freezes, per the Washington Post.

Although several states already had free credit freeze laws in effect, nationally, many consumers had to pay even upwards of $10 per credit freeze. Since a freeze needs to be enacted at all three major credit bureaus to be truly effective, the cost proved prohibitive for many. Furthermore, fees were also charged for lifting – also known as thawing – a credit freeze, further raising costs. Thaws are also free of charge since the new legislation took effect September 21.

What about home buyers?

While inarguably useful for consumers’ protection from identity theft and many types of fraud, credit freezes are far from perfect. As the process for instituting a security freeze on your credit stands now, it’s cumbersome for most consumers. First, a freeze must be enacted at all three major credit reporting bureaus: Equifax, TransUnion and Experian.

Although the processes are similar, all three credit bureaus have their own set of steps and requirements to enact a credit freeze. After a freeze is enacted, the consumer receives a unique PIN with which they can temporarily thaw or permanently unlock the credit reports. As a result, each consumer needs to remember three separate and unique PINs for efficient fraud protection.

It also means that when a consumer applies for a line of credit, like a mortgage loan to purchase a home, they must thaw their credit report for the lender. When buying a home, a buyer’s credit will generally be checked two or three times. Once during the initial mortgage application process and once again just before closing, when the lender performs a loan quality initiative (LQI) to check for any possible credit changes. If the loan is secured through a third party, then they too may pull a credit report during the buying process.

This can quickly add up to three separate thaws and freezes per buyer, further complicating issues, especially when there are several co-borrowers, all with security freezes in place. Since most times the consumer doesn’t know which credit bureau the lender will be using, they must lift and reestablish freezes at all three. This can significantly slow the closing process and may cause buyers to miss out in time-sensitive options.

Freeze, lock or alert?

With free credit freezes now mandated by law, credit bureaus have started offering “credit lock” products. These services are usually offered for a fee and are similar to freezes. Consumer advocacy groups however recommend freezes instead of locks, since credit locks may carry fees for bundled-in services, while credit freeze services are subject to government regulation. Consumers interested in credit monitoring should set up such services prior to enacting a freeze, as it might not be possible after a freeze is in place.

Consumers can also opt for fraud alerts instead of credit freezes to protect themselves. While a fraud alert does not lock away a consumer’s credit data, any lender or service provider must first receive approval from them before extending credit in their name. For example, a mortgage lender may pull a buyer’s credit report if they first verify the buyer’s identity.

Recent regulatory changes have also increased short-term or initial fraud alerts from 90 days to one year, and mandate free alerts and credit monitoring services for active duty military personnel. Consumers impacted by identity theft can opt for extended fraud alerts that remain active for seven years.

Work in progress

It’s important to note that a credit freeze does not protect consumers from all types of fraud –  health insurance fraud can still be committed by an identity thief using a stolen Social Security number. Tax refunds can also be fraudulently claimed by criminals using stolen personal data. A credit freeze also doesn’t prevent credit bureaus from collecting consumer data or sharing that information with third parties, like marketers.

For increased protection, it’s recommended that consumers freeze their report at the National Consumer Telecom and Utilities and Exchange. As suggested by its name, this reporting bureau is employed by mobile phone, utility and television companies to run checks on potential customers. Although this agency is affiliated with Equifax, consumers must enact a separate freeze with them, even if they already froze their credit file with Equifax.

Where to freeze?

All major credit bureaus must now offer consumers the opportunity to freezes their credit files free of charge. This can be done online, by phone or vial mail. For more information on how to freeze your credit with the three largest credit reporting agencies as well as the National Consumer Telecom and Utilities Exchange, check out the links below:

Disclaimer: Information provided above is meant to serve as a general guideline on credit freezes. We strongly recommend that consumers check with all three major credit reporting bureaus for relevant information in order to ensure a successful and efficient credit freeze.

Eliza Theiss

Eliza Theiss

Eliza Theiss is a senior writer reporting real estate trends in the US. Her work has been cited by CBS News, Curbed, The Los Angeles Times, and Forbes among others. With an academic background in journalism, Eliza has been covering real estate since 2012. Before joining PropertyShark, Eliza was an associate editor at Multi-Housing News and Commercial Property Executive. Eliza writes for both PropertyShark and CommercialEdge. Reach her at [email protected]