Why freezing your credit is usually a bad idea?

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In this world where every swipe of your credit card and every online transaction can put your information in the hands of identity thieves, a credit freeze may not seem like the worst idea. It prevents fraudsters from opening new lines of credit in your name, while still allowing you to take out loans and new lines of credit when needed.

But there are several downsides to freezing your credit that most people don’t realize. Here are a few things to know before you call.

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Credit card packed in chains with padlock

Image source: Getty Images.

How credit freezes work

If you decide to freeze your credit, you should contact the three credit bureaus and let them know. They will essentially lock your credit reports so new creditors can’t view them unless you give them the special PIN the credit bureaus give you. Your existing creditors will still have access to your reports.

The freeze will remain on your credit report until you contact the credit bureaus and ask for it to be removed. Freezing your credit won’t hurt your credit score, although getting new credit can be more challenging.

Disadvantages of credit freezes

Every time you want to view your credit reports yourself or have a creditor do this, you must provide your PIN. If you lose track of this number, your creditors won’t be able to see your report and will likely reject your application as they won’t be able to assess your creditworthiness. You can still have the credit freeze lifted temporarily or permanently, but you’ll need to go back to the credit bureaus and fill out additional paperwork to prove you’re not an identity thief.

In the past, you also had to pay to freeze and thaw assets. But from September 21, 2018, the credit bureaus are obliged to offer it to you for free.

Perhaps the biggest downside to credit freezes is that all the hassle of identity thieves may not stop. While a freeze will most likely prevent them from opening new accounts in your name, it won’t prevent fraud on your existing accounts. For example, if thieves get their hands on your credit card number, they can still charge a bunch of fees in your name, credit freeze or no.

When should you consider a credit freeze?

Credit freezes aren’t right for most people. Unless you’ve been the victim of widespread identity theft – that is, someone has tried to… declare and open several new accounts in your name — a credit freeze probably isn’t worth all the hassle.

If only your credit card was stolen or if the thief only opened one account, you can probably handle this without a credit freeze. Notify the financial institution and credit bureaus to remove the fraudulent accounts from your credit report. If it’s a simple case of credit card theft, your card issuer will probably just cancel the card and send you a new one.

When your identity has been stolen, it’s always a good idea to get your credit reports and check for other fraudulent accounts that may have been opened in your name. Then, if you think it’s necessary, you can get a fraud alert on your credit reports.

Unlike credit freezes, fraud alerts are free and don’t require you to remember a special PIN. Instead, they put a warning on your credit reports notifying creditors that they must take additional steps to verify your identity before approving new loans or lines of credit.

You can place a fraud warning on your credit reports by contacting the credit bureaus and requesting it. The alert lasts for 90 days from the date it was first posted to your report, and then expires. You can extend it if you want.

Credit freezes can protect you from identity thieves, but that security comes at a price. For most people it’s not worth it. Instead, keep a close eye on your credit reports for fraudulent activity, and if you notice any, put a fraud warning on your report.

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