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Credit Reporting

What is a Credit Freeze? Here’s What You Need to Know

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In the US and abroad, the threat of financial fraud remains a significant concern, leaving many unsure about how to safeguard their credit. A powerful step you can take is initiating a credit freeze— a measure less familiar to many, with only 17% of Americans having set one up in the past or even opting for a fraud alert.

You might have heard of a credit freeze but may not fully understand their benefits or how they work. Understanding credit freezes may be an important step in taking control of your financial security.

This article aims to describe credit freezes in simple terms, explaining their essence, functionality, and optimal uses. By the end, you'll know exactly how credit freezes work and if they're suitable for protecting your financial situation.

What is a Credit Freeze?

A credit freeze, or security freeze, acts as a protective barrier for your credit report. By activating a credit freeze on your account, you essentially lock away your credit report from potential creditors and lenders. They won't be able to see your credit history unless you decide to temporarily deactivate or permanently remove the freeze. This makes it much more difficult for identity thieves to open new accounts or lines of credit in your name, as most creditors will not approve applications without first checking the applicant's credit history.

Much like how a padlock secures your personal belongings, a credit freeze prevents unauthorized access to your credit report information. Activating this freeze locks your credit report, making it off-limits to most third parties.

It's important to note that activating a credit freeze has no impact on your credit score. It also does not prevent you from retrieving your credit report or continuing to use your existing credit lines. Whether you're applying for jobs, securing a lease, or buying insurance, you can often do so without lifting the freeze. Though these non-credit transactions do not typically require a credit check, keep in mind that the freeze may need to be lifted temporarily if one is requested upon application.

Should you ever need to apply for new credit, however— a new credit card or a loan perhaps— it will require lifting the freeze temporarily. This adjustment allows creditors the necessary access to your credit report for approval processes. We will discuss all of this below.

How Does a Credit Freeze Work?

To place a credit freeze, you'll need to contact each of the three major credit bureaus—Equifax, Experian, and TransUnion, individually. You can request a freeze online, by phone, or by mail. When applying, you'll need to provide personal information to verify your identity, such as your name, address, date of birth, and Social Security number. Exact steps can be found in the ‘How to Place a Credit Freeze’ section below.

When you initiate a credit freeze, the bureau will send you a confirmation letter containing a unique PIN or password. It’s very important to keep this information safe and secure, as you'll need to reference it when you want to lift the freeze temporarily or remove it permanently.

With the freeze active, new creditors and lenders cannot access your credit report in response to a new application. This ensures that any attempts to open new accounts, or secure credit in your name while the freeze is active, are likely to be refused.

It's important to note that placing a credit freeze does not prevent all types of credit-related activities. Current creditors or debt collectors, for instance, can still consult your report for ongoing account management. Similarly, government entities may pull your report under specific circumstances such as responding to court orders or legal demands.

You can still check your credit report and review your credit score without lifting the freeze.

Federal law guarantees the right to place or lift a credit freeze without cost. However, there are exceptions; a few states permit credit bureaus to charge a small fee for these services, particularly if you've placed or lifted a freeze previously within a specified timeframe.

When Should You Consider a Credit Freeze?

With a staggering number of Americans, about one in three, falling prey to identity theft (with credit fraud being the primary concern), it may be important to focus on safeguarding your financial health.

If you discover that your personal information has been caught up in a data breach (yeah, it’s a bummer, but happens more often than most would think), it may be wise to think about implementing a credit freeze. Placing a credit freeze could help prevent criminals from using that information to open new accounts in your name. 

Similarly, if you notice suspicious activity on your credit report or receive bills for accounts you didn't open, a credit freeze could stop further fraudulent activity.

When to Avoid a Credit Freeze

Let's break down, friend-to-friend, when you may not want to initiate a credit freeze.

If you don't plan on applying for new credit anytime soon and want the strongest possible protection against identity theft, then a credit freeze may be your best choice. However, if you anticipate needing to apply for credit in the near future or if you're not sure if you want to deal with the process of lifting and replacing a freeze, then a fraud alert might be a more convenient option.

Whether you lock down your credit with a freeze or go for the easier-to-manage fraud alert, the goal is peace of mind. It's all about creating a safety net that fits not just your financial situation but your lifestyle and future plans too. Staying one step ahead in the security game can save you from a world of stress down the line.

How to Place a Credit Freeze

Placing a credit freeze is a straightforward process that can be completed online, by phone, or by mail. To initiate a freeze, you'll need to contact each of the three major credit bureaus individually. Here's how to get started:

Contacting Equifax

Contacting Experian

Contacting TransUnion

What Information Is Required?

You must provide certain personal information to verify your identity when requesting a credit freeze. This may include:

  • Your full legal name

  • Address (current and previous addresses for the past two years)

  • Social Security number

  • Date of birth

  • A copy of a valid government-issued ID card, such as a driver's license or passport

  • A copy of a recent utility bill, bank statement, or insurance statement to prove your current address

Once your request is processed, each bureau will send you a confirmation letter containing a unique PIN or password. It’s important to keep this information secure and safe, as you'll need to reference it when you want to lift the freeze or temporarily or remove it permanently. 

In most cases, the credit bureaus will place the freeze within one business day of receiving your request by phone or online and within three business days of receiving a request by mail.

Temporary Lifts and Permanent Removal of Credit Freezes

While a credit freeze provides strong protection against identity theft, there may be times when you need to grant access to new creditors to your credit report. For example, if you're applying for a mortgage, car loan, or new credit card, the lender must review your credit history to approve or deny your application.

You have two options in these situations: temporarily lift your freeze or permanently remove it altogether. A temporary lift allows you to specify a period of time during which your credit report can be accessed, while a permanent removal eliminates the freeze completely.

How to Temporarily Lift or Permanently Remove a Credit Freeze

To temporarily lift or permanently remove a credit freeze, you'll need to contact each credit bureau individually and provide the following information:

  • Your unique PIN or password provided when you requested the initial freeze

  • Proof of identification

  • The start and end dates for the temporary lift (if applicable)

You can request a temporary lift or permanent removal online, by phone, or by mail. The process for each bureau is similar to placing the initial freeze.

In most cases, the credit bureaus must lift or remove the freeze within one hour of receiving your request by phone or online and within three business days of receiving a request by mail. While this service is free in most states, some do allow credit bureaus to charge a small fee for temporarily lifting or permanently removing a freeze. Be sure to check the specific requirements in your state.

Advantages and Disadvantages of a Credit Freeze

Before deciding on a credit freeze, it's important to evaluate your specific circumstance and its pros and cons as a means of defending against identity theft.

Advantages of a Credit Freeze

  • A credit freeze may offer one of the highest protections against new account fraud, making it much more difficult for identity thieves to open lines of credit in your name.

  • Credit freezes do not affect your credit score or prevent you from using your existing credit accounts.

  • In most cases, placing and lifting credit freezes is free, and you can do so anytime.

Disadvantages of a Credit Freeze

  • Credit freezes can be inconvenient if you frequently apply for new credit, as you'll need to lift the freeze temporarily each time.

  • If you lose your unique PIN or password, you may need to provide additional documentation to retrieve this information in order to unfreeze your credit report.

  • A credit freeze does not prevent all forms of identity theft, such as tax fraud or the unauthorized use of your existing accounts.

Fraud Alerts and Credit Locks

While credit freezes are a powerful tool for protecting your credit, they're not the only option available. Two common alternatives are fraud alerts and credit locks.

Fraud Alerts

Fraud alerts are a less restrictive alternative that requires creditors to take extra steps to verify your identity before granting credit in your name. There are three types of fraud alerts:

  • Initial Fraud Alert: Lasts for one year and may be appropriate if you suspect you may be at risk for identity theft.

  • Extended Fraud Alert: Lasts for seven years and is available to victims of identity theft who have previously filed a report with the Federal Trade Commission (FTC).

  • Active Duty Military Alert: Lasts for one year and is available to deployed military personnel.

Credit Locks

Credit locks are similar to credit freezes but are products offered by individual credit bureaus rather than federally regulated security measures. While credit locks may be more convenient with features like mobile apps and real-time alerts, they may also come with monthly fees and fewer legal protections than credit freezes.

Your Credit, Your Identity

Credit freezes could be a valuable tool for protecting your credit and financial information from identity theft. By restricting access to your credit report, a freeze could make it much more difficult for criminals to open new accounts in your name. This could provide you peace of mind and control over your credit. 

Aside from the minor disadvantages listed above, there is no major downside to setting up a credit freeze (or at the very least, a fraud alert). 

While a security freeze can prevent certain access to your credit reports, it cannot protect you against other forms of fraud. Thus, it's important to check your statements for suspicious activity and regularly review your credit reports. 

At Varo Bank, we're committed to helping you keep your money safe. Remember, protecting your credit proactively is the key to a strong financial future.

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