Pros and Cons of Freezing Your Credit
Consider all the possible consequences before you act
In September 2018, a new federal law went into effect allowing consumers to freeze their credit or their child’s credit without paying a fee. This means you can restrict access to your credit file, which should make it more difficult for thieves to open a new account in your name.
To freeze your credit file, you must contact the three national credit reporting agencies: Experian, Equifax, and TransUnion.1 If requested by phone, these agencies are required to freeze the credit within a business day. If you later request a freeze to be unfrozen, the agencies are required to do this within an hour. If a request in either direction is made by mail, the agencies are allowed three business days to comply.
There are pros and cons to freezing your credit, so before you decide to do so, you should consider them thoroughly.
On the plus side, your information is safer when your credit file is frozen. No credit accounts will be set up in your name under any circumstances. This means criminals will be unable to exploit your personal information even if they are able to obtain it.
Perhaps the biggest benefit of freezing your credit is prevention of the hassle that comes in the aftermath of an identity theft situation.
"If you are a particularly high risk, you should always keep your credit locked if you don’t plan on any new credit applications in the near future," says Eric Rosenberg at Entrepreneur.com.2 "High-risk individuals include people with recent identity theft or specific knowledge that your information has leaked and is likely to be used in the very near future. The biggest risk in the event of undetected identity theft is someone opening credit accounts in your name, racking up big balances, harming your credit and leaving you with the bill. But under U.S. law, you should not be liable for fraudulent charges or activity. Cleaning it up after the fact, however, is easier said than done. That is the biggest reason to keep your credit reports frozen."
The fact that the unfreezing of your credit has to happen within an hour when requested by phone makes something that could be a big hassle relatively painless. If you remember to unfreeze your credit before you try to apply for a new account, you should be in good shape.
While the credit freeze makes it impossible for criminals to open credit accounts in your name, it also keeps you from being able to open an account yourself. This can be an inconvenience if you go to apply for a new credit card or loan, or obtain financing for something such as an appliance.
If you forget to unfreeze your credit before you need to, it may add a bit of a hassle to your day. Even if it only takes an hour, that can still be inconvenient if you're ready to fill out paperwork in an office somewhere.
If you do freeze your credit, you must take precautions to prevent being stuck in an inconvenient situation. You'll need to remember that you put the freeze on your credit before you go to apply for financing. In addition, you must remember the password you created when you froze your credit, or keep somewhere so you can use it when the time comes to unfreeze your credit.
For example, if you freeze your credit and then try to get approved for an auto loan at a car dealership, you’d have to unfreeze your credit first. You could this online via your mobile device, but your password would be required. If you don’t have that handy or if you’ve lost it, you'll likely be in for a great deal of hassle and spend more time at the dealership than you’d planned.
Ultimately, the new law is a good thing for consumers, since you can have more control over your credit without having to pay for it. Just consider the pros and cons that come with a freeze before you act.
1. This page on the Nevada State Bank website contains contact information for these agencies, as well as information about identity theft.
The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of Zions Bancorporation, N.A. Member FDIC