How to Decide Whether to Freeze Your Credit Report

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Categories: Finance | Current Events | Fraud | How Tos

  • Freezing your credit report will prevent anyone—including yourself—from accessing your credit history. As a result, no new credit will be issued in your name as long as a credit report freeze is in effect. While it is now possible for any consumer in the United States to freeze their report—whether they have been the victim of identity theft or not—most consumers still do not understand what the process entails, or whether or not they should go through the process. In how to decide whether to freeze your credit report, we will walk you through this important decision.

  • Step 1: Know What a Credit Freeze Will Do

    • Three major credit reporting agencies—Equifax, Experian, and TransUnion—keep close track of your activities as a consumer. They are then paid to provide this information to companies and organizations that want to decide if you are a good or bad credit risk. Most agencies track your credit history by assigning you a credit score. Depending on the number of loans or credit cards you apply for and have outstanding, and depending on the number of times you are late paying those loans back on time, your credit score will go up or down.
    1. By law, you are entitled to a free credit report from each of the three major credit reporting agencies once a year. Visit Mahalo's How to Get a Free Credit Report site for details.
    2. While your credit report is typically accessed only by those organizations you request credit from, if someone tries to use your name or social security number to obtain credit cards or other services, these instances of identity theft will turn up on your credit report.
    3. However, once an instance of identity theft turns up on your credit report, it is already too late. If the identity thief runs up thousands of dollars of credit in your name, and then never pays back the bills, your credit score—and perhaps your future ability to obtain a mortgage, secure credit cards, or even get a job—will suffer.
    4. This is where the freeze comes in. If you ask the credit bureaus to freeze your credit report, whenever a new creditor seeks to check your report, they will be blocked from receiving any information. This means they will not grant you—or an identity thief posing as you—any additional credit lines.
    5. While you can freeze your credit report, you also have the ability to temporarily lift the freeze, or permanently remove the freeze. Only after lifting or removing the freeze can you apply for new credit.
    6. You should be aware that there are many reasons a creditor may access your credit report.
      • Activities which may result in creditors examining your report include:
      1. Applying for a home loan.
      2. Applying for a car loan.
      3. Applying for an apartment lease.
      4. Applying for a job.
      5. Setting up a new utility service, such as a cell phone account.
    7. If you attempt to undertake any of these actions while your credit report is frozen, you will have to lift or remove the freeze.

  • Step 2: Know What a Freeze Will Not Do

    1. A credit report freeze will not prevent everyone from viewing your report. State and federal agencies, companies that have a current account with you, credit monitoring agencies, and companies that sell credit reports can still view your file.
    2. A credit report freeze will not prevent all forms of identity theft.
      • An undocumented worker can still use your social security number to obtain employment, and a criminal can still photocopy your driver's license or give your name when he or she is booked for a crime.
      • If you credit card is stolen, and you do not report the theft in time, a thief can still rack up thousands of dollars in purchases. A credit report freeze does not block access to your existing lines of credit.

  • Step 3: To Freeze or Not to Freeze

    • Freezing your credit report will make you relatively safe from identity theft, but it will also place significant barriers on when and how you and creditors can access your credit history. Freezing or unfreezing your credit report also usually requires payment of a fee. While freezing your credit report is in many cases an excellent—and often, necessary—move, certain factors may make you more or less willing to go through the process. Here we'll talk about some strong reasons to freeze a credit report, and then we'll discuss some reasons that may make you consider the matter more closely.

  • Reasons to Freeze a Credit Report

    1. You have been the victim of identity theft. If you have recently discovered that someone has been using your name to obtain credit or open up other accounts, you will want to freeze your account immediately. This will help to prevent this individual from doing any further damage while you restore your good name.
      • In most states, victims of identity theft can freeze their accounts for free, provided they have documentation from a law enforcement agency or investigative body.
    2. You are a "mature" consumer. Senior citizens are excellent candidates for a credit freeze. Seniors typically have less need to apply for credit. For the most part, seniors do not change residences often, will not open or change bank accounts, do not apply for loans as often as the rest of the population, and may be wealthy enough to avoid applying for credit. The AARP strongly supported and helped make possible credit freeze legislation.
      1. While seniors are less commonly the victims of identity theft, when they are, they usually spend more time trying to clear up their credit histories. A credit freeze can be a quick and easy way to give them (and their children or caregivers) peace of mind during the time of life they deserve it the most.
      2. Some states, such as Louisiana, New Mexico, and Pennsylvania, allow senior citizens to freeze their accounts for free.
    3. You have children under 18. Children are increasingly the victims of identity theft. Because they have little reason to apply for credit, you may want to consider freezing their credit report until they are older.
    4. You do not mind paying the fees associated with freezing your credit report. Freezing your credit report with all three agencies costs, in most states, $30, and it will cost you the same amount to lift or remove a credit report freeze.

  • Reasons You May Not Want to Freeze Your Credit Report

    • Freezing your credit report is not a good idea if you plan on applying for credit in the very near future. Why?
    1. Freezing your credit report is usually not free. While fees vary depending on the state you live in, each of the three credit agencies will almost always charge you to institute a freeze, lift a freeze, or remove a freeze. The majority of states allow the credit bureaus to charge you $10 for each of these actions. This means that freezing or unfreezing your credit report with all three bureaus costs, in most states, $30.
      • Fees vary, but not widely. Freezing and unfreezing in Nevada is significantly more expensive ($15 to place, $18 to lift) than doing the same in New York (free to place, $5 to lift). And freezing and unfreezing in South Dakota is cheapest of all—it's free.
      • If one compares the cost of a credit freeze and the occasional freeze lift with the massive costs associated with identity theft, a credit freeze can be seen as a form of practical, intelligent insurance.
      • If you feel you can wait, John Ulzheimer of Credit.com recommends doing so, because he believes the three agencies will streamline the process in the near future, making it less expensive to freeze your credit report.
    1. You are young and not afraid of identity theft. Younger consumers with short credit histories may not want to institute a freeze because changing jobs and applying for apartment leases will force them to pay fees to lift freezes and thus force them to spend money they might not have.
      • However, younger consumers are more often the victims of identity theft. See the Consumer's Union PDF File for more information on deciding whether a freeze is right for you.
    2. You like to take advantage of "instant credit." If you like to collect credit cards from department stores and other merchants, freezing your credit report will prevent you from being "approved on the spot."
      • In most states, lifting a credit report freeze can take three days or more. If this is the case in your state, instant credit for you will be a thing of the past.
      • However, some states have passed laws requiring the credit bureaus to lift a freeze within 15 minutes of a consumer's request.

  • Alternatives to Freezing Your Credit Report

    • U.S. News and World Report describes freezing your credit as the "big gun" of identity theft protection. If you want to protect your credit, but do not think a credit freeze is right for you, you can place a fraud alert on your credit file, or sign up for a credit monitoring agency. However, you should know that both options do not protect you as much as a credit freeze will.
    1. A fraud alert only compels future creditors to request additional identification, and does not prevent unauthorized entities from obtaining your credit report or credit score. See Mahalo's instructions on How to Place a Fraud Alert on Your Credit Report for more information on fraud alerts.
    2. If you sign up for a credit monitoring agency, you will be alerted each time an entity views your credit report. This can be useful, but Consumers Union recommends that you not pay for credit monitoring because you are entitled by federal law to free credit reports once a year from each of the three major agencies. Spacing out your requests every few months, Consumers Union notes, will give you a good idea of what is occurring in your credit history.
    3. Fees for credit monitoring services, according to Consumers Union, range from $43.80 to $150 a year.
    4. However, if you want to watch your credit more closely, and you don't mind paying for it, a credit monitoring agency can provide some peace of mind.
    5. The Wall Street Journal has an excellent chart comparing credit freezes, fraud alerts, and credit monitoring.

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