What Is a Credit Freeze, and How Can It Protect My Identity?

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credit freeze

Until recently, it was very difficult for the average person to know his or her own credit score and credit history. The credit reporting agencies jealously guarded this information, since it was their primary revenue stream. While people applying for mortgages and other types of loans often had to pay a fee for their credit checks, this was privileged information. As a result of legislation that allowed people to see their own credit reports, such as the Fair Credit Reporting Act, people who conscientiously protect their credit ratings through research and prudent borrowing habits know a lot more about their credit and their options for managing it. One of those options is a credit freeze.

What Is a Credit Freeze?

When you freeze your credit, you're controlling how Experian, Equifax, and TransUnion, the three main credit reporting agencies in the U.S., sell your credit history, credit ratings, and other credit information. These agencies generate revenue by selling people's credit information to prospective lenders to determine creditworthiness, risk of default, payment history, etc. Once you request a credit freeze, the credit reporting agencies cannot sell your information without your permission.

Naturally, these agencies charge a fee to anyone who wants to freeze their credit, but most people requesting a credit freeze are glad to pay it, because freezing your credit allows you to prevent identity thieves from opening new lines of credit in your name. If a lender can't access your credit information, that's a red flag, and the lender probably won't (and shouldn't) extend credit to the person requesting it in your name. A credit freeze on your files therefore effectively places a barrier between your credit information and anyone hoping to access it; to a thief, that's a sign to run for cover because you, the victim, suspect something is up.

If you suspect that you're a victim of identity theft and want to freeze your credit, you must contact each of the credit reporting agencies. In most states, it costs around ten dollars to freeze or unfreeze your credit with each agency. These freeze fees vary by state, but consumer advocacy groups are currently lobbying Congress to establish a national standard for credit freeze fees.

You can also remove the freeze on your credit at any time, either temporarily or permanently. If you're applying for a loan or another line of credit (including a credit card), you'll need to remove the freeze to allow the credit issuer to examine your credit history. Once a decision has been reached on your application, you can re-institute the credit freeze at your discretion.

A credit freeze is a very effective tool to thwart identity thieves and severely limit the damage they can do. Credit freezes are one of the most powerful ways to protect your credit information, but they're only one part of a comprehensive approach to managing and protecting your identity. Other means include diligently reviewing your credit reports from each agency at least once a year, paying careful attention to your credit card statements, and enrolling in an identity monitoring service.

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