How credit freezes work, what they cost

They make your credit reports inaccessible to lenders

Fred O. Williams
Senior Reporter
Expert on consumer credit laws and regulations.

How credit freezes work, what they cost

Editor's note: This article was updated Oct. 2, 2018 to include new information about credit freezes.

For a cost of up to around $30, you can prevent identity thieves from opening accounts in your name by freezing your credit report.

Credit freezes, also known as security freezes, place a lock on access to a borrower's credit report. With a credit freeze in place, lenders and other companies cannot view the borrower's credit. As a result, freezes prevent the consumer from gaining access to new loans, such as credit cards and mortgages, but they also keep fraudsters from opening new accounts in that person's name.

These freezes can subsequently be lifted temporarily or permanently by consumers, sometimes also for a price. However, in many states, you can avoid paying any fees at all by providing proof – a police report, for example – that you've already been a victim of fraud.

"I think for anyone who is extremely concerned about the prospect of identity theft, there is no better tool than a credit freeze," says Joe Ridout, consumer services manager with the nonprofit consumer rights group Consumer Action. That's especially true for the elderly, who may already have all the credit they need but still remain susceptible to fraud.

Update: Freeze your credit for free - online or by phone

Starting Sept. 21, 2018, it is free to place or remove a freeze on your credit report. Here are the contact links and numbers to do so.

Be ready to supply your address and Social Security number to verify your identity. For more information about free credit freezes, read “How to free your credit: A step-by-step guide.”

Credit freezes can be a great tool for protecting yourself against identity theft, but they're not for everyone. If, for example, you suspect that you might be an ID theft target because of a data breach at a company where you use your card, setting a temporary fraud alert with the credit bureaus is a simpler and no-cost alternative.

Those who sell credit freezes don't like them much. "Freezing your credit file is an extreme step that removes you from the credit marketplace," says Rod Griffin, director of public education with the credit bureau Experian.

"It is still very important to understand that freezing your credit file will not prevent identity theft, although it is often misrepresented in that way," Griffin says. Freezes, for example, don't prevent fraudsters from accessing an existing card account, if they already have the necessary information.

In place of credit freezes, the credit reporting industry typically promotes credit monitoring services, which bureaus and banks sell to their customers, or fraud alerts, which are available for free from the credit bureaus and do not block access to credit reports.

A fraud alert requires lenders to verify your identity before opening a new account, usually by calling the phone number that you supply with the alert. Filing the alert also entitles you to a free copy of each of your credit reports, beyond the free copy that everyone may obtain annually. 

The basics of credit freezes

Credit freezes go further than either credit monitoring or alert by making credit reports inaccessible to lenders and others who might have an interest in viewing a consumer's credit history. Available from each of the three major credit bureaus, the credit freeze comes at a price – anywhere from free to $10 per bureau, with the cost determined by state laws – but will remain in place indefinitely, provided the consumer doesn't remove the freeze.

A freeze on credit is different from other fraud prevention tools. Critics of fraud alerts say even when they are in place, not all lenders take the step of notifying a borrower abou credit inquiries. They also argue that credit monitoring – which must be renewed every year or so – only lets borrowers know that fraud may have taken place. But by then, it's already too late.  

"I think for everyone who is extremely concerned about the prospect of identity theft, there is no better tool than a credit freeze."

Consumer advocates say that credit freezes typically cost less than other options and are even free for some consumers. "A credit freeze is both cheaper and far more effective than credit monitoring," says Ridout. He says that although credit monitoring services have millions of subscribers, they remain an "unambiguous waste of money."

Only a small one-time fee – often $10 – is required to place a credit freeze at each of the three bureaus, while credit monitoring can cost the consumer $120 or more each year, says Paul Stephens, director of policy and advocacy with the nonprofit Privacy Rights Clearinghouse. 

For many consumers, "It would be much more economical to obtain a security freeze and make a one-time payment, which would be the case for most people, and then be done with it," he says.

Credit freezes are also becoming easier to use. "We have been able to make significant improvements in the credit file freezing process since it was first instituted several years ago. In most instances, freezes can be lifted via the Internet or telephone in a matter of minutes," says Experian's Griffin.

 

So who's the best fit for a credit freeze? "The advantages of a credit freeze rise with age," says Ridout. That's because younger consumers tend to frequently apply for credit cards, mortgages and new jobs, while senior citizens have less need for credit but more reason to be cautious.

"As people get older, it's been shown that the time necessary to recover from identity theft tends to go up," Stephens says. Plus, there comes a time when getting approved for more credit just isn't necessary. "At a certain point in life, you may have all the credit you need," Ridout says.

People involved in nasty divorces may also want to consider freezing their credit, since their spouse may have all the information (name, Social Security number, etc.) needed to open new accounts in their identity, says Stephens.  

One credit freeze does not fit all

Unfortunately, the steps required to freeze credit aren't always clear. With no federal credit freeze law in place, consumers are left to navigate a patchwork of state laws. Consumer advocates acknowledge that this can present a challenge. "There really is no uniformity in terms of the costs and time frames for both placing and lifting credit freezes. You do find a tremendous difference from state to state," Stephens says.

Fifty states and the District of Columbia have enacted legislation allowing consumers to place security freezes on their credit reports, according to the National Conference of States Legislatures.

"There really is no uniformity in terms of the costs and time frames for both placing and lifting credit freezes. You do find a tremendous difference from state to state."

Prices vary. The cost to put a freeze in place ranges from free (for ID theft victims or senior citizens) in some states to $20 per freeze in Delaware, while the cost of unfreezing runs from free to $18. The most-common price is $10, but in 44 states, no fee is charged to identity theft victims. Twenty states require victims to provide a police report to qualify for a free freeze. The cost of unfreezing runs from free to $12.

Since it's necessary to line up freezes with all three major credit reporting bureaus – Experian, Equifax and TransUnion – for complete protection, the cost for a freeze needs to be multiplied by three.

Downsides of credit freezes

Credit freezes may cause some other headaches for consumers, including:

  • No guarantee of protection.
    Freezes don't guarantee the consumer won't be victimized by fraudsters who access existing accounts or passwords, for example. "One thing the credit freeze won't do is prevent continued activity by an identity thief on an account they've already assumed," says Consumer Action's Ridout. Additionally, other types of fraud, such as employment fraud, insurance fraud and online auction fraud, aren't prevented, Griffin explains. "None of these identity frauds involve a credit report, so would not be prevented by a credit file freeze," he says.
  • Not all access is frozen.
    Not everyone will be blocked from viewing a frozen credit report. For example, "businesses with which you have an existing relationship can still access your credit history as part of their portfolio management programs," Griffin says.
  • PIN number required.
    To remove the freeze on your credit, you need to remember the PIN number associated with the freeze. "When it's months or years later, the consumer might not have the PIN number with them," says J. Craig Shearman, vice president of government affairs with the National Retail Federation, which advocates for the retail industry.
  • More legwork.
    "Unlike a fraud alert, which can be placed on all three of your credit reports with one call to any one of the three nationwide credit reporting companies, you will need to contact each separately to establish a security freeze and receive your unique PIN number," says Steve Katz, former spokesman for credit bureau TransUnion.
  • Difficulty opening new accounts.
    "A frozen credit file can create substantial inconvenience and difficulty for consumers who will be applying for credit or other services, such as cellular telephone service," says Griffin. That's because the company may have to then contact the borrower, requesting removal of the credit freeze. In some cases, frozen credit could prevent or delay you from landing a job when the employer performs a background check that includes checking your credit report.
  • Long wait for credit to unfreeze.
    "One of the biggest problems with a credit freeze is it takes a lot longer to thaw credit than it does to freeze it," says the NRF's Shearman. That could be a problem if you need credit in a hurry, such as a store credit card for an unexpected appliance purchase. "Let's say it's August and you need a new freezer and there's meat about to spoil," Shearman says. The meat could thaw long before your credit.

Consumer advocates say that the credit reporting industry has another reason for pushing other options instead of credit freezes: money. Banks and bureaus sell credit monitoring services to their customers and thus have a vested interest in promoting them. "The superior product doesn't have a corporation behind it. And for that reason, the credit freeze gets much less attention that it deserves," says Ridout.

And that's a shame, experts say. After all, a credit freeze is a good choice for many consumers, they say, but people can't take advantage of a tool they've never heard of.

See related:  How to check for, fix ID theft or fraudFamiliar fraud: when friends, family steal your identity 


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Updated: 10-18-2018