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One way to protect yourself against identity theft is to freeze your credit file. This means that new credit cannot be established in your name until you lift the security freeze. With a credit freeze, your credit becomes off-limits to anyone, preventing new credit accounts from being opened in your name.
During the typical credit application process, a creditor will request the applicant's credit report and score from one of the nation's three major credit reporting agencies: Equifax, Experian, and TransUnion. The creditor then uses this information to determine if the applicant is creditworthy, meaning you are someone they would consider loaning money to.
If a creditor is denied access to an applicant's credit file and can't evaluate the borrower's credit history, it is likely that the credit request will be denied. That's a good thing if it's a crook who is trying to access your credit, but can be a stumbling block if it's a legitimate request.
Others who are denied access to your credit file include insurance companies, landlords, employers who need to obtain a background check, cell phone companies, and utilities. A security freeze, however, will not keep out anyone with whom you already have an account or other business relationship.
A security freeze can be inconvenient, particularly if you're actively seeking new credit or doing other thing that require your credit file to be accessible. For this reason, consumers considering a freeze should take into account their particular circumstances before initiating a freeze.
Consumer Action suggests the following pros and cons of a security freeze:
Pros:
- A security freeze can stop imposters from opening new accounts in your name.
- In most cases, placing a security freeze - and lifting it - is free fro victims of identity theft.
- A freeze does not stop you from getting new credit or other services.
- The freeze does not expire, but remains in effect until you remove it.
- Freezing provides much greater protection and typically costs much less than a monthly credit monitoring service.
- A freeze does not affect your credit score.
Cons:
- A security freeze is only effective if you activate it at all three credit reporting agencies.
- Depending where you live, non-victims may pay up to $60 to place the freeze with all three agencies.
- In most states, non-victims must pay a fee whenever they ask to temporarily lift the freeze and when they permanently remove it.
While free in a few states, a temporary lift can cost non-victims in other states up to $12.
- A security freeze can take up to three business days to be lifted, delaying your credit application or other transactions and making "instant credit" unavailable to you. However, a number of states have passed laws that require the freeze be lifted within 15 minutes of the request beginning around September 2008.
- A freeze does not prevent fraud involving your existing bank or credit accounts.
A security freeze is not always the best choice for everyone. But, if you are a victim of identity theft or believe you are at increased risk, a security freeze can provide protection and peace of mind. Before making this decision, consider the likelihood you will become a fraud victim, the extent to which the freeze would delay important transactions, and whether the extra peace of mind is worth the cost and extra effort.
Source: Consumer Action
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