SHOULD YOU ORDER A “CREDIT REPORT LOCKDOWN”?

By John Ingrisano

By John Ingrisano

Director, Family Finance Conference Center

It happens more and more these days:  You open the mail to find a bill for a credit card or store account you do not recognize.  If that’s not enough, the invoice has thousands of dollars of charges on it.  Somehow, identity thieves got their hands on your personal information and went to town on your nickel, setting up new credit card and installment accounts from coast to coast and beyond.

If so, you’re not alone.  More than eight million people in this country are victims of identity theft each year. 

Fortunately, there is a new tool in the battle to stop being ripped off, known as a credit report lockdown (also called a credit freeze or security freeze).  This tool works by blocking identity thieves from applying for credit cards or setting up bogus loan accounts, even if they have your personal data.   

Credit report lockdowns are available from all three major credit reporting agencies (Equifax, Experian, TransUnion). They work by blocking the release of data for new account applications without your permission.

How they work:  Security freezes help prevent a very specific type of identity theft, which occurs when a criminal attempts to open credit in another individual’s name.  Lenders typically require access to the borrower’s credit report before issuing a loan or credit card.   If the lender is blocked from obtaining the applicant’s credit report, it is unlikely the loan or credit card will be approved.  The result is a reduction in the risk that loans or credit cards will be issued fraudulently. 

The freeze is an all-or-nothing deal, however, in that the credit freeze effectively stops any access to the credit report, with the exception of current lenders.  If you place a freeze on your credit report, you must request that the freeze be lifted if you want to apply for new credit.  You can lift a freeze for a specified time period, such as two weeks, or to allow a specifically named lender access to your account information. 

Note that a security freeze generally does not apply to circumstances in which you have an existing account relationship and a copy of your report is requested by an existing creditor for certain types of account review, collection, fraud control or similar activities.

There are drawbacks.  While the concept is fairly simple, the credit lockdown process itself can be fairly difficult to manage.  Specifically… 

1.     You might end up blocking or at least slowing your own legitimate credit applications.  So, if you choose to place a security freeze on your credit file, be sure to plan ahead for all of your credit applications.

     Remember:  This also can also impact more than credit card and other loan applications.  A security freeze could block or delay approval of applications you make regarding a new loan, credit, or mortgage, as well as issuance of insurance, approval for government services or payments, leases on rental housing, employment,

new investment accounts, licenses, and even cellular telephone contracts, utility approval, internet credit card transactions and other services, including extensions of credit limits at the time of a purchase. 

2.     There are costs involved.  Though the laws in some states provide that you may be eligible for a free security freeze if you are the victim of identity theft, the typical cost  is $10. (Unfreezing your account will cost another $10.)  Since you must contact all three reporting agencies separately, each change could cost $30.  

3.     The process can be slow and cumbersome.  You may be required to submit detailed documentation, mostly for your own protection, especially when lifting a freeze.  Plus, you must contact all three credit reporting agencies individually.  

4.     Glitches can occur.   A lot can go wrong administratively, especially since you are dealing with three separate entities.  While most of the agencies’ requirements are uniform, there can be variations.  If you end up having to resubmit information, additional delays can ensue. 

5.     A security freeze is not a panacea.  According to the Federal Trade Commission, only 15 percent of all cases of identity theft involve fraudulent new account origination.  So, a security freeze offers good but limited protection in a specific, narrow range of situations.  It will not prevent identity theft in the majority of cases.

Is a security freeze worth the time and cost?  That depends.  If you have ever been the victim of ID theft, you may well decide yes.  Also, a security freeze is a good way to add an extra layer of protection to thwart identity thieves.  However, keep in mind that there are a number of details and limits about which you need to be aware.  Also, if you do plan to expand your credit or make other contractual commitments in the near future that will require a credit check, you may want to hold off.  Otherwise, you could end up scrambling to unfreeze your report.   

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