Credit Freeze: What is it and When Does it Makes Sense?

Credit Freeze: What is it and When Does it Makes Sense?

If you’ve applied for credit or a job, you know how essential your credit report is. Lenders rely heavily on them for evaluating your financial history to determine if you qualify for a loan or credit card. Employers use them as part of a background check to assess a person’s financial responsibility. Having a clean and healthy credit report is critical to your financial future, so it’s essential to protect it and the information it contains.

That’s where a credit freeze comes in. A credit freeze, also known as a security freeze, is a security measure that restricts access to your credit reports. When you place a credit freeze on your credit reports, it makes it more difficult for anyone, including identity thieves, to open new credit accounts or loans in your name because creditors and lenders won’t be able to access your credit report without your permission.

Here’s how a credit freeze works:

1)      Request a Freeze: To initiate a credit freeze, you need to contact each of the three major credit bureaus in the United States: Equifax, Experian, and TransUnion. You can request a freeze online, by phone, or by mail.

2)      PIN or Password: When you place a freeze on your credit report, you’ll receive a Personal Identification Number (PIN) or password. You’ll need this critical information to temporarily lift the freeze or remove it when applying for new credit.

3)      Credit Access Restrictions: Once the freeze is in place, the credit bureaus will not release your credit report to creditors or lenders unless you expressly grant permission by providing your PIN or password. This added layer of security helps prevent unauthorized access to your credit history.

4)      Existing Accounts: It’s important to note that a credit freeze doesn’t affect your existing credit accounts or obligations. It only prevents new accounts from being opened without your consent.

5)      Lifting or Thawing: If you need to apply for new credit, you must contact the credit bureaus again and provide your PIN or password to lift or “thaw” the credit freeze temporarily. This allows the creditor to access your credit report for a specific period.

In 2018, the United States implemented the Economic Growth, Regulatory Relief, and Consumer Protection Act, making credit freezes free for all consumers. So, there will be no charge for placing or lifting a credit freeze. Be sure to check your country’s specific regulations and procedures if you reside outside the United States.

When a Credit Freeze Might Make Sense

Here are some scenarios where a credit freeze might be advisable:

1)    Identity Theft Concerns: If you suspect or have been a victim of identity theft, a credit freeze can help prevent further unauthorized access to your credit reports and the opening of new accounts in your name.

2)    Data Breach Exposure: If your personal information is exposed in a data breach, especially one that involves sensitive financial data, it’s a good idea to freeze your credit temporarily to reduce the risk of identity theft.

3)    Financial Hardships: If you’re facing financial difficulties and don’t anticipate the need for new credit in the near future, a credit freeze can be a proactive step to prevent unauthorized credit applications, which could exacerbate your financial situation.

4)    Seniors or Vulnerable Populations: Elderly individuals and vulnerable populations may be at a higher risk of financial exploitation. Freezing their credit can offer an additional layer of protection.

5)    Minimal Credit Activity: If you’re not actively seeking new credit, such as loans, credit cards, or mortgages, a credit freeze can help safeguard your credit reports from potential misuse during periods of inactivity.

6)    Child Identity Protection: Parents can freeze their child’s credit to prevent identity theft and fraudulent credit accounts from being opened in their child’s name.

When considering a credit freeze, it’s essential to understand that it’s different from credit monitoring and identity theft protection services. Credit monitoring services alert you to changes in your credit report, while identity theft protection services may offer additional features such as insurance coverage for identity theft-related expenses.

A credit freeze is a powerful tool to protect your personal and financial information, especially if you’re concerned about identity theft or have been a victim of it in the past. Keeping your PIN or password secure is essential, as losing it can make it more challenging to access your credit report or lift the freeze when necessary.

Looking for Expert Financial Guidance?

Protecting your financial information goes beyond just considering a credit freeze. If you’re looking to align your financial strategy with your broader life objectives, we’re here to guide you. At Uncommon Cents Investing, we prioritize your unique goals and ensure they remain central in all planning and decision-making. Reach out to us and let’s make sure your financial plan complements your life vision seamlessly. Connect with us today and embark on a journey to holistic financial well-being.


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More About the Author: Sheena Hanson

Sheena is a highly regarded financial expert known for her clear explanations and practical advice on complex financial matters. She earned her CERTIFIED FINANCIAL PLANNER™️ designation in 2010 and holds a Bachelor of Science degree in Finance from the University of Wisconsin LaCrosse.