Here’s What Happens When You Freeze Your Credit

Freeze credit Shutterstock_1153049450 KEY POINTS

  • A credit freeze prevents lenders and other third parties from accessing your credit, stopping criminals from opening new credit accounts in your name.
  • A credit freeze doesn’t stop all fraud, as scammers could still steal your card information or open other types of accounts that don’t require a credit check.
  • You can unfreeze your credit at any time or thaw it, which is when you temporarily lift the credit freeze.

Identity theft is a concern for every consumer, and unfortunately, it’s on the rise. There were nearly 1.7 million reports of identity theft in 2021, up about 300,000 from 2020. It’s also estimated to have caused $56 billion in losses in 2021.

While there’s no way to guarantee you’re safe from identity theft, there are methods to reduce your risk. One of the more robust options is a credit freeze, which prevents lenders and other third parties from accessing your credit report. You can freeze your credit for free with each of the three consumer credit bureaus: Equifax, Experian, and TransUnion.

You can set up a credit freeze online, by phone, or by mail, and you need to do it with each credit bureau separately. If you’re interested in this security measure, here’s what happens when you freeze your credit.

New credit accounts can’t be opened in your name

The benefit of a credit freeze is that identity thieves can’t open fraudulent credit accounts in your name. When applying for any type of credit, such as a credit card or loan, the lender runs a credit check on the applicant. If your credit is frozen, lenders can’t check it, so they won’t be able to approve applications made using your information.

Keep in mind that you won’t be able to open new accounts, either. Before you apply for anything, you would need to unfreeze your credit. You could also thaw it, which is when you temporarily unfreeze your credit.

It’s also worth noting that a credit freeze could block any process that requires a credit check. That includes more than just credit cards and loans. Another common example would be renting a home. Many landlords run credit checks on prospective tenants. You would need to unfreeze or thaw your credit before filling out a rental application to avoid potential issues.

It protects you from some types of fraud, but not everything

A credit freeze is excellent at preventing new account fraud, where criminals open credit accounts in your name. This is the most common type of credit card fraud. A scammer uses your information to open a credit card and rack up debt, defaults, and it’s your credit score that takes the hit.

But don’t let this give you a false sense of security. There are many forms of fraud out there, and a credit freeze doesn’t protect against all of them.

For example, if a criminal gets their hands on your credit or debit card information, they could use it to make fraudulent purchases. This is called existing account fraud. A credit freeze doesn’t help here, because it involves an account that’s already open.

Criminals could also still use your information to open accounts that don’t require a credit check. For example, scammers can open fraudulent bank accounts despite a credit freeze. That’s because many bank accounts don’t require a credit check to open.

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You can thaw or unfreeze your credit at any time

There are two options if you want to lift a credit freeze:

  • Thaw your credit: Temporarily lift the freeze for a period of time that you specify.
  • Unfreeze your credit: Remove the freeze from your credit.

Just like when you freeze your credit, you can thaw or unfreeze it online, by phone, or by mail. Doing it online is a convenient option, because each credit bureau lets you set up an account and manage credit freezes through it.

It’s also the fastest option, according to the Consumer Financial Protection Bureau. Credit bureaus have one hour to thaw or unfreeze your credit after receiving the request online or by phone. If you make the request by mail, they have up to three business days.

Should you freeze your credit?

A credit freeze is a good security measure if you have an elevated risk of identity theft. If you’ve been a victim of identity theft before, or you’ve learned that your information was compromised, then a credit freeze could be a way to proactively protect yourself.

It can be inconvenient, though. If you aren’t at a higher risk of identity theft, you may want to start with other measures, such as a credit monitoring service. Some credit card companies offer these services, including identity theft protection, free of charge.

You could also put a fraud alert on your credit file. This requires lenders to take additional steps to verify your identity before approving credit applications in your name. You get extra protection this way, without the inconvenience of a credit freeze.

Source: The Ascent