If you’ve never heard of a credit freeze, well, here’s how it works: A credit freeze, also called a security freeze, offers consumers the opportunity to shut down access to their credit reports. That means no one — creditors, thieves, or even you — can check your credit or open a new account in your name.
That can come in handy if one of your accounts has been compromised or if you’re worried your identity has been stolen. That got us thinking: Why aren’t credit reports just automatically frozen for security purposes? After all, a recent survey by TransUnion found that 83% of consumers are extremely, very or somewhat concerned about identity theft, though very few actually take the necessary precautions to avoid it. So, if thieves couldn’t open a new account in your name without you giving the go-ahead, wouldn’t that eliminate a lot of hassle for everyone?
Turns out, it wouldn’t.
“While on the surface an automatic credit lock sounds like a good idea in today’s climate, I think there are a few obstacles to its implementation,” Thomas Nitzsche, a credit educator with ClearPoint Credit Counseling Solutions, told Credit.com. “First, there are likely legal issues involved, since a universal credit freeze would effectively obstruct all consumers from accessing their own credit unless they take action to unfreeze it.
“Second, creditors and bureaus have likely run analyses and determined that the costs of losses and dispute resolution from data breaches and ID theft are still less than the costs involved with implementing a universal freeze,” he continued. “Creditors are unlikely to favor obstructing the path to opening new lines of credit for legitimate customers, who are still by far the majority of applicants. The processes, costs and trickle-down effects go much further than what first meets the eye.”
One of those processes that can make automatic credit freezes a major headache, particularly for consumers, is that all three credit reporting agencies must be contacted separately by the consumer in order to unfreeze credit reports.
“In most cases, if you request the thaw online or by telephone, the credit file can be unfrozen within a matter of minutes,” Experian spokeswoman Kelsey Audagnotti said. “However, each state has its own laws that specify procedures for freezing and thawing credit reports. To be safe, we recommend you allow up to three days for your credit history to be thawed.”
So, if you just happened to spot your dream car while driving past a dealership, you wouldn’t be able to just walk in, do the financing paperwork and leave that same day with your new car (unless you were paying cash, of course). You’d need to “thaw” your credit, wait until it was accessible, and then go in and make your purchase.
Also, it’s important to note that credit freezes don’t mean you can’t be a victim of fraud or identity theft.
“Security freezes may help prevent credit fraud, but they will not prevent other types of identity crimes that do not involve accessing a credit report,” Audagnotti said.
How a Credit Freeze Works
Freezes can be a bit cumbersome for the average consumer, and they sometimes require a fee (you can check out our full list of states where you can freeze your credit for free here), but the number of consumers freezing their credit has grown since the option became widely available in 2007.
Each consumer’s situation is unique, of course, so some may get more peace of mind out of having their reports frozen and not mind having to unlock/lift a freeze. If you’re considering a credit freeze, whether because you are concerned someone has access to your accounts, or just for peace of mind, there are several things to consider.
First, do you apply for new lines of credit often?
“TransUnion offers credit lock as part of its Credit Monitoring service, which allows people to keep their TransUnion credit locked and unlock it only when applying for new lines of credit, such as an auto loan or credit card, which we recommend,” Heather Battison, a vice president at TransUnion, said. “Keeping it locked prevents fraudsters from opening lines of credit under your name. And, if an inquiry is made on your credit, you’ll receive an alert prompting you to contact the credit bureau.”
However, consumers who regularly apply for new lines of credit may prefer to not freeze their credit report so they can access it more regularly, Battison explained.
Second, do you need a simple fraud alert or a credit freeze?
According to Nancy Bistritz, a spokeswoman for Equifax, it’s important to know the distinguishing factors between these two options. For example, there are two types of fraud alerts:
- An initial fraud alert lasts for 90 days. This may be an appropriate tool to consider if you have a good faith suspicion you are or about to become a victim of identity theft.
- An extended fraud alert remains on your credit for seven years. This may be a good tool to consider if you have been victimized and are currently in the process of trying to undo the damage, but it does require the submission of an identity theft report.
“A consumer can request to add a fraud alert (either a 90-day or a 7-year extended alert) if he/she feels that they need to protect their credit file,” Bistritz said. “By adding the fraud alert to include the consumer’s contact information, any potential creditor needs to take reasonable steps to verify the identity of the consumer who is seeking to open a new account.”
If you don’t want to (or feel you don’t need to) put a freeze on your credit report, it’s still wise to closely monitor your credit for signs your identity has been stolen. (You can do so by pulling your credit reports for free each year at AnnualCreditReport.com and by viewing your credit scores for free every 14 days on Credit.com.) Sudden drops in scores, mysterious addresses or loan accounts you never opened are indicators that fraud may be occurring.