Consumers have usually heard about fraud alerts that can be placed on their credit reports, but perhaps fewer persons understand that they have an option to place a freeze on their credit reports for a nominal fee.
By definition, a credit freeze, or credit report freeze, allows an individual to control how a U.S. consumer reporting agency (credit bureau) is able to sell his or her data. The credit freeze locks the data at the consumer reporting agency until an individual gives permission for the release of the data. The three credit bureaus affected by this are Equifax, Experian and TransUnion.
In contrast, a fraud alert is a mechanism that signals to credit issuers who obtain credit reports on a consumer that they must take reasonable steps to verify the consumer’s identity before issuing credit, making it harder for identity thieves to secure new credit lines. Fraud alerts are much less restrictive than a credit report freeze.
The advantages of using a credit report freeze
Credit freezes are frequently viewed as the most effective way to prevent financial identity theft. Each year in the United States, approximately 15 percent of all cases of identity theft are cases of new account origination identity theft, according to the Federal Trade Commission.
If you are not planning to open an account in the near future (which can still be accomplished by lifting a freeze), you can get assurance against such identity theft by putting a freeze in place at each of the three credit bureaus.
No one, including family members or even yourself, can open an account while the freeze is in place.
The disadvantages of using a credit report freeze
You must place a credit report freeze at each of the three agencies, and therefore you must lift or remove the freeze at each of the agencies should you yourself wish to open another account.
There is a fee to place, lift or remove a credit report freeze, the amount varying by state but typically in the $5.00 to $15.00 range per credit bureau. While the credit report freeze is in place, the credit bureau cannot sell your information.