The Pros and Cons of Freezing Your Credit

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The Pros and Cons of Freezing Your Credit

The Pros and Cons of Freezing Your Credit

Freezing your credit is a simple process because of a new law called the “economic growth, regulatory relief, and consumer protection act”. This recently enacted law requires the three biggest national credit bureaus to have and maintain websites where consumers can get his/her credit frozen. These websites allow one to choose how long they want the account frozen.

Data breaches are becoming more common, but you know that if you listen to the news regularly. These breaches can affect your identity and/or credit record and can wreak devastating results in your life. That house you were planning to buy may not happen because your credit was damaged due to stolen identity. 

A solution for anyone who has had their identity or credit stolen is a credit freeze. It will keep anyone from stealing the information in your credit report and can prevent these identity thieves from opening new loans attached to your name. They are also called a security freeze. It allows you to restrict access to your credit report which makes opening new credit accounts in your name more difficult. They are free and do not affect your credit score.

Note that it will not protect existing accounts and will not protect another identity–related transactions where a credit check is not involved. At one time, freezing your credit involved a monetary cost. However, the law now requires credit reporting agencies to offer them for free. Since each person’s situation is different and circumstances change, knowing the pros and cons will allow you to make your best decision.

Pros of Freezing Your Credit

Besides what we have already mentioned, freezing your credit can give you peace of mind. Knowing that when you look at your credit report and the information there is correct can help you sleep better at night. Freezing your credit can also prevent one from applying for a credit card impulsively. Lifting these freezes can take around 20 minutes, which puts a damper on impulse buying.

Another positive about these freezes is they prevent or stop credit bureaus from selling your personal information. The credit bureaus selling your personal information is one reason you get many credit card solicitations in the mail. This happens because the bureaus can share your information with prospective lenders, whether you have allowed it or not. Freezing of your credit prevents the bureaus from sharing your information, which should end all the credit card offers.

Cons of Credit Freezes

They may help if your identity has been stolen or someone has stolen your Social Security number, but there are some disadvantages. The first disadvantage is that not only do they prevent opening new lines of credit for hackers, they also prevent you from opening new lines of credit. Since life happens, you may frequently need to access cash, which a line of credit can do. However, if you need to institute a freeze, you and the hacker cannot access your credit. While the freeze may work to stop new fraudulent accounts, it will not keep thieves away from your existing accounts.

Another con is that one needs to provide a PIN each time one wants a creditor to access one’s credit report. However, some credit bureaus (Equifax and TransUnion) allow one to unfreeze his/her accounts with authentication questions. Experian requires your PIN. We all have too many codes, numbers, and PINS to keep track of and need no more.

The third con with credit is akin to the previous one. Lifting a freeze creates extra work and requires additional time from your life. The Federal Trade Commission says credit bureaus have to respond to your request for a freeze. The FTC will respond within one hour of an online request or a phone request and within three business days if requested by mail. This, however, means that you must make the request, which takes more of your already busy life.

The fourth con with a credit freeze is it is not 100 percent foolproof against identity theft or credit fraud. The freeze prevents new lines of credit from being opened in your name. However, they provide very little protection for existing accounts. For example, if a hacker already has access to your Social Security number or credit card information, some accounts are still not safe. You need to monitor all of your accounts vigilantly because the freeze will not protect accounts that existed before the freeze.

Credit freezes are not substitutes for common sense monitoring of your credit. One should not have a false sense of security because they have frozen their credit. Freezing your credit should not make you feel 10 feet tall and bulletproof, but is just another tool to help maintain your credit. If you monitor your credit reports and credit scores as you should, you may well be able to detect fraud sooner. This can contain the damage done to your credit history.

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