Many Americans these days are understandably worried about the prospect of identity theft in which a scammer opens up a credit card or other loan in the victim's name, runs up all kinds of charges and then disappears. The victim is left with the huge headache of trying to clear his or her good name with lenders and credit bureaus alike. This scary prospect may have you considering a credit freeze, but there are some important considerations to keep in mind before you take this step.
When your credit is frozen, you can't take out a loan, apply for a credit card, refinance your house or open a new financial account of any kind. Plus, you may have trouble landing a job if a prospective employer checks your credit history, which many do. The advantage is that nobody else can do any of these things, either; a thief can't say she's really you and open a credit card behind your back.
Freezes can cost up to $20 each (for a total of $60 to freeze your credit at each of the three major bureaus.) The amounts vary by state; this article at creditcards.com has a table at the bottom listing the costs in more populous states. If you have proof that your identity's been stolen before, bureaus will waive the fee.
Previous victims of ID theft are good candidates for credit freezes; since their information has already been compromised once, this move prevents it from happening again. Beverly Harzog, spokeswoman for CardRatings.com, suggests that senior citizens -- because they have fewer credit needs than younger adults -- may be more susceptible to scams and con artists. Parties in messy divorces may also want to consider freezing their credit, since the former spouse probably has enough personal information to open an account in the other person's name.
Despite its obvious uses, though, freezing your credit does have drawbacks. "Before requesting a credit freeze, the consumer should know that if they need to apply for credit, they'll have to unfreeze their credit file so the new lender can look at their credit report," Harzog told WalletPop via email. Contrary to what some believe, freezing doesn't stop any identity theft that's already taken place with an existing account. It's also not a successful way to keep a lender from seeing or documenting a negative credit score mark like an unpaid bill, since lenders with whom you have an existing relationship can still access your report, Harzog points out.
What's more, getting your credit unfrozen takes some patience and some money. You have to pay to unfreeze your credit, and requests typically take a few days to process. This means you can't sign up for a store credit card at the point of purchase (although opening a card, especially a retail card, on a whim isn't really a good idea in the first place).
You can elect for a permanent unfreeze or a temporary one. If you're shopping for a car or a home, or expect to open any new accounts or begin a job search, a freeze is likely to be more inconvenient than helpful to you. "Freezing an account is not something most consumers would opt to do as simply a precautionary measure against identity theft," Harzog points out. "The best option short of freezing your credit file is to monitor your credit card statements so you know if someone is using your card," she advises.
It's a tactic that won't cost you a dime, but could save you many times that in fees, fraud and frenetic scrambling.
Freeze your credit? It's one way to cut out the con artist