4 MIN READ
Your personal information is everywhere. It’s kept in social media accounts, online shopping accounts, financial accounts, and pretty much any other account you set up online or offline. Companies are quick to collect your information but continue to have problems securing it. Data breaches happen on an all too regular basis. So until online security reaches a point where there are no more data breaches, what can you do to protect your personal information and reduce your risk of identity theft? Freeze your credit.
What Does It Mean to Freeze Your Credit?
When you apply for credit, such as for a credit card, a car loan, or mortgage, the company deciding whether to give you the loan checks your credit history with one of the three major credit bureaus – Equifax, Transunion, or Experian. The company uses the information the credit bureau has on file to see if you're a good credit risk. If the company decides to extend you credit, your new account is opened. When you freeze your credit file, you are telling the credit bureaus not to pass your credit information to the requesting company, thus preventing a new account from being opened.
A point to note, freezing your credit is different than locking your credit. Locking your credit is a paid service offered by the credit bureaus. Freezing your credit is free.
Why is Freezing Your Credit the Best Protection?
Freezing your credit is the best protection against identity theft because would-be identity thieves cannot open a new account in your name, even if they have your personal information to do so.
How Hard Is It to Freeze Your Credit?
You can freeze your credit in about 45 minutes, and thanks to a law passed in 2018, it is now free. The process can be completed online. You must freeze your credit at each of the three credit bureaus:
The process for freezing your credit at all three credit bureaus is pretty similar. You answer some questions about yourself to validate your identity, place the credit freeze, and then create an account. Equifax and TransUnion guide you through creating an account, and verifying if your credit is frozen with them is easy to see.
With Experian you must go back and create the account yourself after freezing your credit. Experian also tries to sell you upgraded coverage, but remember that freezing your credit is free. Within your Experian account, on the dashboard, click the “Lock Your File” button. You will be taken to the “CreditLock” tab. Here you can verify if you have a Security Freeze on your Experian credit file.
With each of the credit bureaus, you will be given or need to create a PIN. Be sure to file your PINs in a secure location. You will need the PIN to temporarily lift or permanently remove your security freeze via phone or mail. A PIN is not required to remove your security freeze online.
What is Not Protected When You Freeze Your Credit?
Your existing credit card and bank accounts are not protected with a credit freeze. If an identity thief obtains your credentials to access an existing account, it is still vulnerable. However, with bank and credit card accounts, you have limited liability if unauthorized transactions are reported in a timely manner.
Your maximum liability for unauthorized use of your credit card is $50. With debit cards and bank accounts your maximum liability is $50 if it is reported within 2 business days after you learn about the unauthorized activity. If you report the activity within 60 calendar days, your maximum loss is $500. If you report it after 60 days of receiving your statement or fail to report it, you are liable for any losses from your account. For more information visit the FTC Consumer Information website.
What Are the Pros and Cons of Freezing Your Credit?
- No one can open a new account in your name that requires a credit check, significantly reducing your risk of identity theft
- Freezing your credit is a free service
- A credit freeze can be temporarily lifted if you need to have your credit checked
- A credit freeze does not impact your credit score
- Provides peace of mind knowing you have significantly reduced your chances of identity theft
- Every time you want to open a new account you need to plan ahead to and contact the credit bureaus to unfreeze your credit files
- You must contact each credit bureau individually each time you want to freeze or unfreeze your credit file
- Freezing your credit does not prevent identify theft for existing accounts
What Other Steps Can You Take to Prevent Identity Theft?
- Request and review a free copy of your credit reports annually from each of the credit bureaus at Annual Credit Report
- Sign up with the free service from Credit Karma and you will be notified when something on your credit report or score changes
- Monitor your credit card statements and bank accounts regularly, and report any unauthorized activity as soon as you are aware of it
- Use a password manager, such as LastPass, to secure your online passwords and sensitive information
- Use a cross-cut paper shredder to dispose of sensitive papers
While no solution can guarantee that you won't be a victim of identity theft, freezing your credit is the best step you can take to prevent it. The step is free and easy and shouldn’t take more than 45 minutes to complete. While there are other ways we would all prefer to spend our time, the time spent will be nothing compared to dealing with identity theft if someone opens an account in your name. Gain some peace of mind and help reduce your risk of identity theft by freezing your credit today.
About the Author
Chris Ladd is a financial planner and founder of TriPrescient Financial Services, Inc. – a financial planning firm with the mission “To provide an empowering and engaging planning experience, delivering insight and bringing financial balance to our clients.”
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