How and Why to Freeze Your Credit

by RJ

in Top Credit Cards

A credit freeze, also known as a credit lock down or a security freeze, is a way to prevent new lines of credit being open underneath your name. When you freeze your credit you’re issued a PIN # by the credit reporting agency, that temporally allows access to your credit by a third-party. Without this Pin #, no one can have access to your credit report.

Why would someone want to freeze their credit?

Anyone who is at a high risk of identity theft, would benefit from a credit freeze. For example, if you recently lost you wallet, which contained your social security number on your drivers license, now is the time to apply for a credit freeze. With just the information on your drivers license, someone could easily apply for a new line of credit in your name.

Another person who would be at high risk of identify theft, is someone who has recently lost an important document through the mail. In general, any time your social security number is floating around, is a great time for you to apply for a credit freeze.

Besides preventing your identity being stolen, freezing your credit is also a way to prevent bad financial behavior. For example, if you’re tempted to buy a new car but know it’s a horrible financial decision, in a moment of strength  apply for a credit freeze. Therefore, in order to buy the car, you have to go through a few extra loop holes.

Advantages of Freezing Your Credit

  • No one can open any new lines of credit, without the PIN #.
  • Extra steps for you to open a new line of credit, to prevent bad financial behavior.
  • Less personal information of yours circulating around because companies can’t inquire about your credit history without your consent.

Disadvantages of Freezing

  • Can’t immediately open any new lines of credit. This could cause problems when applying for a new job, mortgage, car, etc…
  • Small fee to freeze and unfreeze credit. For victims of identity theft, the fee is usually waived.
  • Thieves can still use your existing accounts. Which brings me to a really good point. Never carry all of your credit or debit cards in one place. Say you lost your wallet, while you have placed a credit freeze on yourself. A lot of the time, it takes a few days to temporally unfreeze your credit because you have to send the request through certified mail. So now you have no access to cash and are stuck waiting a few days, until your credit report unfreezes.

How To Freeze Your Credit

Each state has different fees, laws, and regulations, on how to freeze your credit.

General rules are as follows:

  1. You have to apply with each different credit reporting agency. You can do this online. (Equifax, Transunion, and Experian)
  2. You must pay a small fee to freeze your credit

Other Protection Against Identity Theft

The other option to prevent identify theft, would be to use a service. However, I haven’t heard too many positive things about these services. Last year, LifeLock one of the more popular identify protection services, lost a $12 million class action law suit. Plus, the owner, who in a PR stunt publically published his social security number, has gotten his identity stolen a few times now.

For additional protection against identity theft, review your homeowners or renters insurance policy. Many policies contain coverage up to $1,000,000.

P.S. – I’m in the middle of writing an eBook about managing your credit. If you have any additional questions about credit or suggestions of what to insert into the eBook, please let me know in the comments.

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{ 1 comment }

Belmont ThorntonNo Gravatar June 25, 2010 at 2:40 am

Freezing your credit is a good idea as it can certainly protect you from any mishaps like theft or fraud if you have lost your credit card or debit card.

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