Definition of Credit Freeze
Credit card freezes are one of the many tools in a consumer's arsenal to use against identity theft and credit card fraud. They are effective if used properly, and are available to all consumers. Credit freeze rules vary by credit bureau, so it is important to understand the intricacies behind them before placing one on your own credit report.
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Identification
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According to Kimberly Lankford of Kiplinger Personal Finance, if you freeze your credit, "You prevent lenders from seeing your credit report unless you specifically grant them access. This can prevent identity thieves from taking out new credit in your name, even if they have your Social Security number and other personal information."
A credit freeze does not prevent you from using your current credit providers, but it does prevent all new credit openings under your name.
Function
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A credit freeze prevents lenders from seeing your credit report. Without that history they will not issue any new credit. Sandra Block of the "Your Money" section of USA Today compares using a credit freeze to using a "deadbolt" for those worried about identity theft and credit card fraud. While you cannot open any new credit lines yourself, this also completely prevents identity thieves from using your information to open new credit lines.
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History
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As of Nov. 1, 2007, all three of the major credit bureaus (TransUnion, Experian and Equifax), offer credit freezes to consumers. Before that, there was a patchwork of state laws with varying levels of effectiveness and eligibility rules such as limiting credit freezes to the victims of identity theft.
Benefits
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Besides being an excellent preventive measure against identity theft and credit card fraud, credit card freezes can be used by those who cannot frequently check their credit reports for discrepancies. Senior citizens can benefit from a credit freeze as an added precaution, and consumers who have already been victimized can prevent any further security problems. Credit freezes can also be effective for those planning on traveling or living abroad for a lengthy period and who want to maintain their credit.
Considerations
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For a credit freeze to be effective, Kimberly Lankford of Kiplinger Personal Finance recommends instituting it across all three credit bureaus (TransUnion, Experian and Equifax). According to her, "The costs vary by state, but you generally have to pay $10 to freeze your account at each bureau and another $10 to lift it–even temporarily. The charge may be waived if you've been a victim of identity theft."
The time it takes to remove or suspend a freeze varies, so if you are planning on taking out new credit lines, it may not be worth it.
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References
- Photo Credit bank statment and cut credit card image by Warren Millar from Fotolia.com
