Why Freezing Your Credit for Free Could Be a Mistake

Frozen dollar
Photo by Svetlana Turchenick / Shutterstock.com

Protecting yourself from identity theft in an era of data breach after data breach is about to become a little cheaper.

Starting Sept. 21, consumers nationwide will be able to place and lift credit freezes for free under federal law. Up until now, credit-reporting agencies — which maintain consumers’ credit histories — have been able to charge to put a freeze on your credit report in many states.

This change is part of the Economic Growth, Regulatory Relief, and Consumer Protection Act, an expansive piece of financial legislation adopted in May.

A credit freeze is not a panacea for financial fraud, however, and it has other drawbacks. So, it’s critical that you understand how freezes work before requesting one.

What is a credit freeze?

A credit freeze, also known as a security freeze, blocks access to your credit reports — and remains in effect until you remove the freeze.

If you freeze your credit, credit-reporting agencies cannot release information from your credit reports without your permission. As the new law explains:

“The security freeze is designed to prevent credit, loans, and services from being approved in your name without your consent.”

This is why freezing your credit with all three major nationwide credit-reporting agencies — Equifax, Experian and TransUnion — is generally considered the strongest protection against identity fraud.

Credit freezes aren’t for everyone

If you suspect someone has stolen your identity or otherwise have reason to believe you are at a higher risk of becoming a victim of identity fraud, a credit freeze should arguably be your first preventive step.

For example, experts widely recommended credit freezes to folks who learned last year that their personal information was stolen in the Equifax hack.

The trouble with a credit freeze is that it can even prevent you from opening accounts or taking out loans in your own name. So, if you do not believe you are at a higher risk of identity fraud and you plan to pursue new credit or a loan in the near future, you may want to think twice about freezing your credit right now — even after you can do so for free.

The Washington Post recently reported that some mortgage lenders say it can be more challenging to deal with consumers who have frozen their credit. Lenders generally need to access your credit information a couple of times during the mortgage process, and if you fail to lift a credit freeze at the right time, it can delay processing of your loan.

The Post report explains:

“Bottom line: If you opt for free freezes and plan to get a mortgage, play it smart: Be ready to unfreeze your credit files at least twice during the process, or simply unfreeze for the duration.”

To freeze or unfreeze your credit, you must request the action from each of the three major credit reporting companies. You can generally do this through their websites or by phone or mail — but it may not happen overnight.

For example, under the new law that makes credit freezes free, credit-reporting agencies get up to three business days from when they receive a freeze request from a consumer to enact the freeze.

A credit freeze is not complete protection

Freezing your credit will not protect you from all types of identity theft. A criminal who has stolen your personal information could still use it to commit medical identity theft or tax fraud, for example.

So, it’s critical that you don’t let frozen credit give you a false sense of security. You need to take other steps to protect yourself as much as possible. We detail those steps in “Why Freezing Your Credit Won’t Fully Protect You After the Equifax Breach.”

How do you feel about credit freezes becoming free? Share your thoughts below or over on our Facebook page.

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