What Is a Credit Freeze?

Credit.com

A security freeze, also called a credit freeze, locks down a consumer’s credit file, meaning no one but current creditors can access it, to protect it from potential fraudulent use. It’s an extreme security measure and should be used only if necessary, as in some cases of identity theft.

Any American can place a security freeze on his or her credit files, though laws and fees vary by state (it’s usually free if you’ve been a victim of identity theft), and they may do so by contacting the three major credit bureaus: Equifax, Experian and TransUnion.

If you want to lift a freeze after it is in place, perhaps because you are applying for a new credit card or a mortgage, you may have to pay a fee to “thaw” the credit file and allow potential lenders to access it. Permanently lifting a credit freeze may cost an additional fee. Such fees, if applicable, range from $3 to $10 among states, although victims of identity theft are rarely subject to such charges.

To further clarify the purpose of a credit freeze: It is not a tool for fixing bad credit, building good credit or managing debt. For those concerned about identity theft, a credit freeze can be useful, but there are other ways to address fraud. You can spot unusual activity by pulling your free credit reports (one from each credit reporting agency), closely monitoring your bank statements and checking your credit scores for sudden changes. Credit.com offers a free tool, the Credit Report Card, that allows you to review your credit profile and scores monthly.

If you are worried that you may be victims of identity theft, a fraud alert (which is different from a credit freeze) is a good tool — these alerts are also placed through the credit bureaus, which will notify you if their information is used to apply for new credit. You can think of it this way: A fraud alert is appropriate when you suspect that your information might be used without your permission, perhaps because of a data breach or a stolen wallet. A credit freeze is for when you’re certain of misuse of your personal data.

Like all tools, used improperly it can cause harm, and it should be used only for the task for which it is intended.

With the greater security of the credit freeze can come greater hassle: When a consumer sets a freeze, he or she receives a personal identification number needed to thaw or permanently lift the freeze. If consumers misplace their PINs, they must go through more steps to confirm their identities and release their credit files. Such intricate procedures are all in the interest of security, which is the point, but it can get complicated for consumers very quickly. The potential for confusion and time-consuming processes underscore the notion that credit freezes should only be reserved for when they are necessary.


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