How Does a Credit Freeze Work?

How Does a Credit Freeze Work?

A credit freeze, also known as a security freeze, allows you to restrict access to your credit report. It lets you take control of your financial information by preventing credit reporting agencies from disclosing your credit score and detailed reports.

Freezing your credit means potential creditors won't be able to access your credit report, making it difficult for an identity thief to create new lines of credit in your name. Freezing your credit does not affect your credit score, and it is free.

The three major US credit bureaus (Equifax, Experian, and TransUnion) are a source of credit information for other companies. Mortgages, credit card companies, car dealerships, and other agencies buy access to your credit history to decide if you have a good credit risk.

Lenders are unlikely to endorse loans unless they know you have good credit risk, which requires them to review their credit reports. Therefore, freezing credit can help protect against, for example, an identity thief taking on a mortgage or other debt in your name.

What if you were the victim of a data breach?

If your Social Security number was exposed in a data breach, freezing credit is considered a powerful measure to prevent someone from opening new credit accounts in your name. Creditors and sellers will not be able to access your credit report, and therefore, it is unlikely to give credit to someone who uses your social security number (SSN).

But have it in mind that a credit freeze won't do anything to protect your existing financial accounts or other identity-related assets that don't require a credit check.

Consider these questions before deciding to freeze your credit on your credit report. 

How to freeze credit?

To freeze the credit of each of your files, you must contact each credit reference agency directly. 

Here is some information you will need to provide: name, address, birth details, social security number, and other personal information.

When you set up a credit freeze, you select or receive a personal identification number associated with the freeze.

Your PIN allows you to unfreeze your credit report when you want to give access to creditors when you apply for credit. It's a good idea to keep your PIN in a safe place. This way, it will be there when you want to unfreeze your credit.

If you have been the victim of identity theft, consider freezing your credit records.

A credit freeze comprises three actions: You can add, suspend or remove a credit freeze.

• Adding a credit freeze means freezing the credit.

• Lifting a credit hold temporarily removes the hold so you can apply for credit.

• Removing a credit hold permanently removes it.

These actions are free.

When should I lift a credit freeze?

There are a variety of times when a credit freeze will need to be lifted.

For example, you will need to lift the freeze if you plan to buy a house or a car, rent a car or an apartment, subscribe to a mobile plan or an account with a utility company, or ask for a credit card.

Many employers also require credit checks for potential employees.

You can send a request to lift the freeze for a specific company or period.

How long will it take? According to the FTC (Federal Trade Commission), if the request is submitted online or over the phone, a credit bureau must lift the freeze within the hour. If the order is placed by mail, an agency has three working days to lift the freeze upon receipt of the order.

Please note that the credit freeze does not apply to current creditors. They can still access your credit reports. In addition, government agencies may have access to it under certain circumstances, such as a court or administrative order, subpoena, or search warrant.

Whether you decide to freeze your credit is a good idea or not, it's wise to take other steps to protect yourself against identity theft and fraud. For example, it's a good idea to monitor your credit reports. This way, you can see if your credit file contains any suspicious or unknown activity.

Each year, you can get a free credit report from each of the three major credit reporting agencies. You can schedule your requests, such as requesting a report from one of the three agencies every four months, so you can keep track of your credit reports throughout the year. Even if you have a credit freeze, you can still access your credit reports.

Can a credit freeze affect my credit score?

No. A credit freeze does not in any way affect your credit score. 

A credit freeze doesn't do these, according to the FTC.

  • Prevent a thief from charging your existing accounts. However, you should check your bank, credit card, and insurance statements for fraudulent transactions.

  • It prevents you from applying for a job, renting an apartment, or buying insurance. A freeze does not apply to such actions, according to the FTC. However, if you do any of these things, you may need to lift the freeze temporarily, for a certain time, or by a certain party, such as a potential landlord or employer. You are free to revoke the freeze and reactivate it when you want.

  • It prevents you from getting your free annual credit report.

  • It prevents you from opening a new account, even if you need to temporarily lift the freeze.

Advantages and disadvantages of freezing credit

Freezing your credit can help if you are a victim of identity theft if your SSN has been compromised. Nonetheless, there are pros and cons to freezing your credit that you should consider.

The Pros of a credit freeze

These are a few of the benefits of freezing credit cards.

  • It does not affect your credit score: Freezing your credit will not affect your credit score. However, that doesn't mean your credit score won't change. Other factors, such as how much you owe and whether or not your credit card payments are made on time, can raise or lower your credit score.

  • It protects you against certain types of identity theft: If you have been the victim of identity theft and your credit has been frozen, you are likely to face fewer fraud attempts involving your personal information. This is because identity thieves won't be able to open new lines of credit in your name, although they can still abuse your existing accounts if they manage to gain access.

  • It's free: You might have been required to pay a fee to freeze or unfreeze your credit records. This is no longer the case.

  • Prevents the creation of new lines of credit: No one will be able to create new lines of credit or accounts that require a credit check on your behalf. If a scammer tries to open a line of credit, they will be blocked. Indeed, lenders often check your credit report to see if you have good credit risk and if you can repay your loan. Credit freezing prevents creditors from checking your credit record.

The Cons of Credit Freeze 

Here are some disadvantages of freezing credit reports.

  • It doesn't stop thieves from accessing your existing accounts: Freezing credit can help prevent identity thieves from opening new accounts in your name, but it doesn't stop them from committing fraud with your existing accounts. This means that scammers can load a payment card into their wallets.

  • It takes a little effort: It takes some effort to place or lift a freeze of credit. For example, you will need to contact all three credit bureaus.

  • Requires PIN verification: You can lose track of your personal identification numbers to lift and freeze your reports. If you want to suspend or freeze your credit reports, you must provide the PIN code. If you forget or lose your PIN, you will need to take additional steps to obtain a new one.

  • You will need to lift the freeze to allow a lender access to your credit records: When it's time to open a new line of credit, for example, if you're applying for a new credit card, you'll need to lift the freeze so your lender can access your file.



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