What is a Credit Freeze and How Do They Work?

by Barbara J. Feldman on November 15, 2008

Because of the harm and hassle that goes with identity theft, many people are taking tougher measures to protect themselves from identity theft. One of the things consumers can do is get a credit freeze. A credit freeze puts limits how the credit reporting agencies can use your information. A credit freeze locks all of your data, so if someone were to try and get a loan or open a credit card using your identity, they wouldn’t be able to since your credit information is locked. Many financial experts consider a credit freeze to be the most effective and secure way of protecting yourself from identity theft.

When you apply for any type of credit, your credit is run and the credit reporting agencies provide the company with your credit report. If the loan or line of credit is approved, it too is added to your credit. Unfortunately, people steal identities and open up lines of credit specifically so they won’t have to pay. As a result, the victim’s credit is destroyed because they don’t even realize these new lines of credit are being open. With a credit freeze, the credit report can’t be obtained, so credit isn’t issued.

What are the pros and cons of a credit freeze?

While a credit freeze may sound like a smart option, it is important to weigh the pros and cons before continuing with one. The following are some of the benefits of a credit freeze:

• Enhanced security. Perhaps the most effective way to protect yourself from identity theft. A credit freeze won’t stop a thief from stealing credit cards and incurring charges on them, but it will stop them from opening up new lines of credit in your name that will in turn affect your credit rating.

• Prevention. If you have already been a victim of identity theft, freezing your credit will prevent any further lines of credit being open in your name and with your information.

• Cost. If you are a victim of identity theft, most often the fees associated with freezing or locking your credit are waived.

• Peace of mind. With credit theft on the rise, many people enjoy the increased peace of mind that comes with knowing no one will be allowed to open new credit lines in their name.

You should also be aware of the downsides that may come into play when you freeze your credit. Some of these include:

• Not available everywhere. Most states are moving towards laws that will allow you to freeze your credit at your desire; however, not all states will let you do this.

• Doesn’t allow you to apply for credit. Placing a freeze on your credit also prohibits you for applying for any lines of credit. So if you want to remove the freeze in order to apply for a credit card, loan, or any other line of credit, you will have to wait at least three days and pay a fee to have it unfrozen.

• Can be costly. In order to freeze your credit, you have to contact all three credit reporting agencies. Each of these charges a fee of $10, so you will usually end up paying $30 each time you freeze your credit. There is also a fee to unfreeze it, so continually freezing, unfreezing, and then freezing it again can become costly.

The following are some things you should consider when contemplating a credit freeze to protect your identity.

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Cite This Page

Feldman, Barbara. "What is a Credit Freeze and How Do They Work?." Surfnetkids. Feldman Publishing. 15 Nov. 2008. Web. 14 Oct. 2014. <http://www.surfnetkids.com/tech/480/what-is-a-credit-freeze-and-how-do-they-work/ >.