A credit freeze blocks access to your credit files so that no one will see them without your specific consent.
It’s the best way to protect your sensitive data from being used in fraudulent applications; the other important benefit is that a credit freeze doesn’t affect your credit score.
If you face a situation, where you need to secure your credit immediately, you have to know all the pitfalls. Let’s take a closer look at a credit freeze procedure, and what it can mean to your personal data.
Definition
A credit freeze blocks access to any files that might be used to request a loan. The main goal of a credit freeze is to protect you from scammers’ attempts to open fraudulent accounts in your name.
How does it work? When someone uses your personal info to request, for example, a 300 dollar loan direct lender will take a look at your credit score.
In case it’s frozen, they will not have enough data to approve an application, which will protect you from an unauthorized debt.
Let’s see how you can freeze your credit right now. It needs just a few steps and careful consideration!
Procedure
First, you should call the three main bureaus — Equifax, Experian, and TransUnion, to freeze your credit. You can either use the toll-free numbers or go online and submit your application.
The two lesser-known bureaus, you can use, are Innovis and the National Consumer Telecom & Utilities Exchange. If for some reason, you can’t freeze credit with the three main ones, these institutions can also have information about you.
According to the Federal Reserve System, three-quarters of U.S. citizens are fully-banked, meaning, they have a bank account and don’t use an alternative financial source; around 19% of citizens are underbanked (they have a bank account and a history of using an alternative financial service product), and the rest 5% are unbanked (people, who don’t have a checking, savings, or money market account).
Unbanked and underbanked individuals are commonly referred to as people who have lower incomes or define themselves as a minority group.
Even though that’s a question of racial diversity, those people also have higher risks of drowning in debt because of bank scammers.
On the other side, unbanked individuals pay extremely high-interest rates because of using non-traditional financial schemes.
Information
So, what’s important to know to freeze your credit at all three bureaus? You need to complete the paperwork first: while the requirements at the financial institutions differ, here’s the data you’ll definitely need:
- Social Security number
- Date of birth
- Living address
Depending on the way you freeze a credit (by phone, by mail, or online), the advisors might ask you to provide:
- Copy of your passport, driver’s license, or military ID
- Proof of address, (can be a utility bill)
- Copy of tax documents and bank statements
You have to also be ready to answer some authentication questions if freezing a credit by phone.
Unfreezing
We’ve been talking a lot about freezing your credit score and the advantages it brings. Freezing credit is a very useful practice, in case you’re afraid somebody might steal your data and request a loan for a fraudulent account.
You may unfreeze your credit in the same way you freeze it: by phone or postal mail (but be ready to verify the information) or online.
The last way is always the fastest: the unfreezing typically takes effect within minutes of requesting it.
Whenever you decide to apply for a loan, ask the creditor which bureau they use to check a credit score. This way, you’ll save time for the other operations and know exactly which bureau to ask to freeze or unfreeze your score.
Disadvantages
There are a few risks you take when deciding to freeze your credit. Here’s the list of the most common ones:
- It gives an alarming sense of security — which might make you slip away without seeing the potential risks. Be aware, that even with a frozen account, you may still be susceptible to fraudulent charges, or health care or tax refund scams involving your Social Security number.
- It challenges your ability to create a mySocialSecurity account (to track earnings, estimate future benefits, etc.). You’ll have to go to a Social Security office to verify your personality.
- It may increase your insurance rate — since some states allow using credit information to set rates. In case you freeze your credit files, and the insurers can’t access them, they might not give you a discount because of a good credit score (because they are simply unable to find out if it’s good or bad).
- It can cause other inconveniences — for example, you have to remember to unfreeze your files if you ever decide to apply for a loan. It is tough when you need money urgently (let’s say, to cover medical expenses). Still, sometimes the inconvenience is nothing compared to identity theft, so, it’s up to you to decide.
The other minor inconvenience (but still an unpleasant one) is that you can simply forget whether your credit has been frozen or not. In this case, you should contact the credit bureaus and proceed with the verification process.
Credit Lock
A credit lock is similar to a credit freeze — they both lock your credit reports. However, a credit lock is not a free option you can get from one of the three bureaus, which means, you’ll need to pay a fee to do that.
When can you need a credit lock, and what is its main advantage?
A credit lock is usually a part of a paid subscription package of the bureaus; it’s easier to open or close it with just your finger swipe in the app. However, it offers fewer legal protections than a credit freeze does.
A credit lock is more like a preventive measure to suspend any fraudulent activity, while a credit freeze is helpful when you believe some of the vulnerable data have been already exposed.
Conclusion
Under given circumstances, a credit freeze is a better option to protect you from fraudulent schemes. It is a legal procedure, which yet doesn’t require your presence at a credit bureau.
A credit freeze can be done by phone, mail, or online. You just need to prepare paperwork in advance and be ready to go through account verification.