It seems like every week there is a headline of yet another data breach. Many people know somebody who has been a victim of identity theft. Could you be next? For sure there’s a sense of vulnerability. Some people are going the extra step to protect themselves, and are freezing their credit as a way to keep identity thieves at bay.
A credit freeze restricts access to an existing credit file, making it more difficult for anyone to open new accounts in your name. This is because most creditors need to see your credit report before they approve a new account. If they can’t see your file, chances are much higher they will not extend the credit, says Kevin Gallegos, a vice president with Freedom Financial Network.
Is this a good idea though?
One plus is that a credit freeze does not affect your credit score or prevent you from getting your free annual credit report. The freeze prevents a credit reporting agency from releasing your credit report without your consent.
"Freezing your credit is appropriate if you’ve been a victim of identity theft. It will greatly diminish the chance of a repeat offense," points out Craig Lemoine, a professor at The American College of Financial Services.
This strategy also makes sense if you won’t need to access any credit for a long time. "If for example, you have a mortgage in place and you’re positive you won’t need a car loan or new credit card, and don’t have an adult child who needs a co-signer," says Gallegos.
What you need to think about
But there is no free lunch. There are some key considerations when freezing your credit. "It costs you $5-$10 typically to set up a freeze and just as much to turn it off. You need to freeze your credit at all the credit bureaus – Equifax, Experian and TransUnion so those fees can really add up," says Howard Dvorkin, author of Credit Hell: How to Dig Out of Debt.
But for some, it’s money well spent. Mary Kaarto, who has been laid off twice, and is author of Help for the Laid Off, had her own issues with debt such that she participated in a debt reduction program for many years to get back on track. "With everything I went through, the last thing I was going to allow was someone to steal my good name and good credit," says Kaarto. The few times she needed to unlock her credit file to make a large purchase she says she didn’t mind paying the $10 to unlock her file and to pay $10 to lock it back up. "The fees are minimal. I have peace of mind."
Be aware too, that any time you need to borrow, extend a credit line or refinance, the process will be more "arduous and lenders will see your report has been frozen," says Lemoine. Unfreezing may require answering a series of personal questions that relies on an accurate report and memory, he adds.
Credit checks are often used by banks in the application process of deposit accounts. Some banks will even do a credit check when existing customers try to open a new deposit account.
Because credit is essential to so many areas of life these days, a credit freeze can be a hurdle of sorts in ways that you might not readily think of, such as when you are applying for a job, apartment, government services, buying insurance, or even getting a new cell phone contract, your credit will need to be accessible.
Just because you have a credit freeze that doesn’t mean you can totally let your guard down. "You still need to monitor all bank, credit card and insurance statements for fraudulent transactions," says Gallegos.
Take other steps to protect yourself
Truth is, there are many ways to keep identity thieves out of your business. Gallegos advocates using chip-enabled credit and debit cards, especially those that have an extra level of security with a PIN number.
Review your credit report. Once a year you are entitled to a free copy from the three major credit bureaus. You can get it at annualcreditreport.com. Look for name misspellings, incorrect addresses or credit accounts that you do not recognize. Address any problems immediately.
Create online passwords that mix letters, numbers and symbols. Do not use something that is easy to figure out, such as birth dates or a maiden name. Says Gallegos, "Have an unique password for each online account and change it monthly. If this is too much to remember, and for many people it is, sign up for a secure password management service via LastPass or PasswordGenie. You can also password-protect credit cards and bank accounts. This prevents thieves from fraudulently withdrawing money or running up credit charges."