Data breaches have become so common that many people assume their personal information is already out there, and they are often right. Names, birth dates, addresses and even Social Security numbers are regularly exposed in hacks of retailers, health systems and other companies. The good news is that two free tools, a credit freeze and a fraud alert, can stop criminals from using that information to open new credit in your name. Knowing the difference helps you choose the right protection.
How a credit freeze works
A credit freeze, also called a security freeze, locks your credit report at a credit bureau so that most lenders cannot view it. Because almost no lender will approve a new card or loan without checking your report, a freeze makes it extremely difficult for anyone to open new accounts in your name. Freezes are free by federal law, they do not affect your credit score and they stay in place until you remove them. You must place a freeze separately with each of the three major bureaus, Equifax, Experian and TransUnion.
The trade-off is a small amount of planning. When you apply for a mortgage, car loan, new credit card or even some apartments and utilities, you will need to temporarily lift the freeze. Each bureau lets you do this online or by phone, often within minutes, and you can choose a specific date for the freeze to return automatically. Existing accounts, background checks you have authorized and your own access to your reports are not affected.
How a fraud alert works
A fraud alert is a lighter-touch option. It does not block access to your report. Instead, it tells lenders that they must take extra steps to verify your identity, such as calling you, before opening new credit. You only need to contact one bureau, which is required to notify the other two. A standard alert lasts one year and can be renewed, while an extended alert lasts seven years and is available to confirmed identity theft victims who file a report with the Federal Trade Commission.
A fraud alert asks lenders to double-check. A credit freeze shuts the door until you decide to open it.
For most people, a freeze offers the stronger protection, especially if you do not plan to apply for credit in the near future. A fraud alert can make sense if you are in the middle of shopping for a loan and do not want the hassle of lifting freezes, or as an immediate step while you gather the information needed to freeze your reports. Some people use both, placing a fraud alert right after a suspected breach and following it with freezes once things settle.
Building a complete defense
Neither tool protects accounts you already have, so pair them with good habits. Review your free credit reports regularly at AnnualCreditReport.com, turn on transaction alerts for your bank and card accounts, use strong unique passwords with two-factor authentication and consider requesting an IRS Identity Protection PIN to block fraudulent tax returns. Freezing the credit of children and elderly parents is also worth considering, since their identities are frequent targets and their reports are rarely checked.
If you discover that someone has already used your information, act quickly. Contact the fraud department of any company where an account was opened, place a fraud alert or freeze with the bureaus, and file a report at IdentityTheft.gov, which creates a personalized recovery plan and the documentation you need to dispute fraudulent accounts. Keep copies of every letter and note every phone call, since a clear paper trail makes it much easier to remove fraudulent debts from your report.
Protecting your credit is a key part of any financial plan, particularly before a major purchase such as a home. If you would like help reviewing your credit reports, planning the timing of a freeze around a loan application or building stronger credit for better rates, the team at Finance Plan Works can walk you through each step.
