What is a Credit Freeze?
After last year’s Equifax security breach, consumers were encouraged to place a credit freeze on their accounts. It’s because this is the most effective way to prevent any new credit from being opened in your name.
I have been asked by a few people what a credit freeze is and if they should place one on their accounts. I thought I had addressed this topic in a monthly newsletter. However, after a business associate asked my opinion, I realized I had not. This post will explain a little bit about why you may want a credit freeze and my personal opinion on choosing not to place a credit freeze.
A Little Background
Equifax, one of three agencies which collects personal data from consumers, announced during the summer of 2017 that data for 143 million consumers had been compromised. Why was this number so large? It’s because virtually every U.S. consumer who has consumer credit or has applied for any loan most likely has an account with Equifax. Whether you know it or not. The Equifax breach seems to have the most people talking about credit freezes.
TransUnion and Experian, along with Equifax, are the three credit reporting agencies. Financial institutions and companies such as your credit card provider and your mortgage service provider send personal data to these agencies. Information they report includes all sorts of data, such as how timely you pay your bills and where you live. Credit card providers and other financial institutions use the data to determine your “credit worthiness”.
The data exchanged between the reporting agencies and the lenders are updated electronically. This means software is used to collect and store the data. The data is then uploaded and downloaded onto servers which stores the data. All this means is that there are many opportunities for data to be hacked and left unprotected.
Any Personal Data Can Be Compromised
As much as we want to protect our data, it is impossible if we are living in this world today. As an example, many consumers refuse to do online banking. They feel it puts their personal information at risk. However, your financial institution has your information stored on their computers. As long as the data is stored on a computer, there are chances it can be hacked.
What’s at Risk if You Don’t Freeze Your Credit?
Placing a credit freeze on your account can help protect your data. However, it only protects you against new accounts being opened in your name. It does not prevent a thief from using a current credit card.
Opening a new account is one of the rarest types of identity theft. According to the Bureau of Justice Statistics (BJS), only 4% had their personal information used to open a new account or other fraudulent activity. Most thefts, 86%, were from an existing credit card or bank account.
Costs Associated with Freezing Your Credit
TransUnion, Experian, and Equifax all charge a fee to place your credit freeze. Each state and the District of Columbia have specific laws as to who can request a credit freeze and the cost of doing so.
How to Decide Whether Freeze Your Credit
REASONS to do:
- Have you had problems in the past? Perhaps all the time and energy involved in correcting the error(s) has worn you out.
- Worried that someone would open a new account in your name? Maybe you have been robbed and personal information has taken from your home, or an old romantic partner has a grudge.
- As a parent, you may want to protect your minor children’s identity. While a minor can’t legally have a credit card, they can have their identity stolen.
REASONS not to:
- You are new to establishing credit. Perhaps you are a recently divorced, widowed, a recent college graduate, or re-establishing credit after bankruptcy. You can’t apply for new credit unless your account is unfrozen.
- You are a credit card rewards junkie – opening and closing accounts is what you do in order to get points for merchandise and trips.
- You are shopping for an auto loan or a mortgage. It adds a level of complexity and takes time to unfreeze your credit. You may want to freeze your credit after you have secured your loan.
What I am Doing About Freezing My Credit?
In the past two years, I have had two of my credit cards compromised. They were from two different credit card providers. And both times, the provider caught the fraudulent charges before I saw it on a statement.
At this point, I have not placed a credit freeze with any agency. I am always leery of including my name on yet another database. Another database that could be compromised. I do review my credit reports, periodically, which would show me if something new was opened in my name.
Perhaps I am just lucky, because I have not had any serious problems with my credit. In the end, it is up to you whether you think it makes sense to freeze your credit. Like many decisions, there is no definite right or wrong answer. If you are still unsure as to what to do, contact me.
Have you placed a credit freeze on your accounts? Have you had an account opened in your name without your knowledge?