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Credit freezes and protecting your credit file from fraud

Posted on Apr 13, 2006 by Tom Fragala

I recently got a question from a reader. Someone told him that everyone should get a credit freeze. I emailed a response and I thought you might want to see my thoughts on this matter (slightly edited for this blog).

There are two things you can do to protect your credit file at the three bureaus. The least invasive is a victim or security alert. This is a statement added to your credit report asking issuers to check with you prior to issuing credit. Unfortunately there is no law that requires creditors to honor this request. I'm told it works about 50-70% of the time. The placement of a fraud alert is always free and you should place it at all three credit reporting agencies if you want to use it.

Some states have enacted laws allowing consumers to "freeze" their credit reports. It is not available in most states. How it works is that potential creditors, insurers, landlords and some employers doing credit file/background checks will be told that your report is unavailable when checking it. Some states are allowing the credit reporting agencies to charge victims for a freeze, some are not. There's typically a charge to enable a freeze if you are not a victim. And you need to freeze the reports with all three of the credit reporting agencies for it to be totally effective.

Everyone assumes that if a creditor is blocked from reading your credit file, they can't issue credit in your name. That's baloney--there's no law which says that. Now, most creditors won't issue credit in that case, they'd be foolish to. A credit freeze can also be costly and quite an inconvenience for some people.  Freezes are not good for people who apply for credit or change jobs frequently. You can put a thaw on your credit freeze and that cost and process for that differs in every state.  Each time you want to qualify for a loan, credit card, housing or a job, you will need to un-freeze the report. This may take about 3 days; in New Jersey it should take just 15 minutes.

A freeze is the very good form of credit file protection. It only protects you from identity theft when the fraudster is targeting your credit file to make changes or open new accounts in your name. It is not a 100% guarantee of anything.

There are exceptions. In these situations, your credit report can be seen even with a freeze enabled:
- Organizations with which you already have a relationship (usually for account maintenance, monitoring, credit line increases, etc.)
- A collection agency, for purposes of reviewing or collecting the account.
- For credit pre-screening as provided for by FCRA.

So my advice is that placing an alert on your file is a free and generally non-invasive way to provide some additional protection. Be sure to state several phone numbers where you can be reached, like a cell phone. A freeze is a more drastic step, which provides the best protection. It may not necessarily a good idea, unless you are a victim where I recommend it strongly. Freezes are available in California and about a dozen other states. Here's some good instructions on enabling the credit freeze in California: http://www.privacy.ca.gov/sheets/cis10securityfreeze.htm.

If you want instructions on placing a fraud alert or for enabling a credit freeze in your state, submit a comment and I’ll respond with the info.

Tags: credit+freeze, alert, credit