NextAdvisor.com Fraud Alert and Credit Freeze Guide

Posted by Joe on May 6th, 2008

Fraud alerts and credit freezes are effective tools in preventing some forms of identity theft. However, many consumers don't understand the differences between the two or how to go about setting up a fraud alert or credit freeze on their credit file.

We have compiled detailed information about both fraud alerts and credit freezes below as part of our ongoing attempt to educate consumers on the best ways to help protect themselves from the ongoing risk of identity theft.

Fraud Alerts

Fraud alerts are annotations in a credit report that let potential lenders know they should take additional action to confirm your identity before issuing credit in your name. There are two types of fraud alerts:

1) Initial Fraud Alert. An initial fraud alert is meant to be a temporary marker on your credit file and lasts for 90 days from the time you set the alert. When a lender runs your credit report and sees that there is a fraud alert in place they are legally obligated to use “reasonable policies and procedures” to verify that the person applying for credit in your name is actually you.

Initial fraud alerts are a good option for consumers that believe they are at risk for what is called new account fraud. This is where a criminal uses your personal information to sign up for new financial accounts such as credit cards, bank accounts, cell phone providers or any other service that may pull a credit report and extend you some for of credit.

Keep in mind, however, initial fraud alerts provide little or no protection for other forms of identity theft. For example, an initial fraud alert will not prevent an identity thief from accessing your existing financial accounts and making unauthorized charges or liquidating your financial accounts. We point this out because some experts point to initial fraud alerts as a magic bullet for preventing identity theft which may give some consumers a false sense of security. If you believe that your existing accounts may be at risk for identity theft then it is a good idea to contact the institutions with which you maintain accounts directly and let them know of the risk. Some of the identity theft protection services we have reviewed will also assist in notifying your bank, credit card company or other institutions on your behalf.

Setting an initial fraud alert requires contacting one of the three credit bureaus and requesting the fraud alert be set. Technically you only need to set the fraud alert with only one of the three major credit bureaus, including Equifax, Experian or TransUnion. However, if you believe you may be at risk for identity theft or simply want an extra level of identity theft protection from new account fraud, we suggest setting fraud alerts with all three bureaus by using the contact information below.

Equifax
1-800-525-6285
www.equifax.com
P.O. Box 740241
Atlanta, GA 30374-0241

Experian
1-888-EXPERIAN (397-3742)
www.experian.com
P.O. Box 9532
Allen, TX 75013

TransUnion
1-800-680-7289
www.transunion.com
Fraud Victim Assistance Division
P.O. Box 6790
Fullerton, CA 92834-6790

Initial fraud alerts are free to set and can be renewed every 90 days. LifeLock, one of the identity theft protection services we have reviewed in our identity theft protection service comparison, protects and renews initial fraud alerts for their subscribers. The do-it-yourselfer may be fine with setting and keeping up with initial fraud alert renewals, but if you believe that the process may be cumbersome or you may not have the time to do so then LifeLock may be a good option for you.

2) Extended Fraud Alert. While an initial fraud alert stays active for a relatively short 90 days, an extended fraud alert stays on your credit report for seven years. Additionally, if you have an extended fraud alert on your credit file a potential lender is required to actually contact you or meet with you face to face to verify your identity before providing credit in your name.

In order to qualify for an extended fraud alert you typically need to demonstrate that there is a high likelihood that you have or will be victimized by identity theft. This typically means showing inconsistencies in your credit report or other evidence that you are at risk of being victimized. As such, setting an extended fraud alert is slightly more complex than setting an initial fraud alert.

The first step in setting an extended fraud alert is filing an Identity Theft Complaint with both the Federal Trade Commission (FTC) and your local law enforcement agency. The FTC has an online Identity Theft Complaint Form which can be submitted securely over the Internet and then printed out so that it can be provided to your local law enforcement agency.

Take the Identity Theft Complaint to your local police or other law enforcement agency to file a report. In addition to your completed complaint you will also need to provide your local authorities with a government issued photo id (such as driver's license or id card), something with your name and mailing address on it that will establish your residency (such as a utility bill, pay stub or rental agreement), a copy of your credit report(s) that shows the inaccuracies you believe may have been caused by identity thieves and any other supporting documentation including information on the identity thief if available.

Your local law enforcement agency will review your information and, if warranted, provide you with a copy of the official police report. make sure this report includes or is attached to your Identity Theft Complaint.

Once you have received the official police report of your identity theft incident your are ready to move on to the next step of setting an extended fraud alert which is notifying the three major credit bureaus. Send a copy of your police report, Identity Theft Complaint, any supporting documentation and a brief cover letter requesting that an extended fraud alert be set on your credit report. You can mail the information to each of the credit bureaus using the addresses below. You can also call them or visit their website if you have any questions on how to proceed.

Equifax
1-800-525-6285
www.equifax.com
P.O. Box 740241
Atlanta, GA 30374-0241

Experian
1-888-EXPERIAN (397-3742)
www.experian.com
P.O. Box 9532
Allen, TX 75013

TransUnion
1-800-680-7289
www.transunion.com
Fraud Victim Assistance Division
P.O. Box 6790
Fullerton, CA 92834-6790

Once you have sent your extended fraud alert request and documentation to the three major credit bureaus they will review the information and notify you to either let you know that an extend fraud alert has been set or to request any additional information. The FTC also strongly suggests that you send your identity theft related documentation to the fraud departments of any of the companies where you hold accounts, or where accounts have been opened in your name, that you believe have been impacted or may be impacted as a result of your suspected identity theft crime.

The process for contacting each of these companies will vary. It is best to contact their customer support department to get more information on how to contact their fraud prevention team.

Once an extended fraud alert is set it will be active on your credit report for seven years. It is possible to remove an extended fraud alert before it expires by making a written request to each of the three credit bureaus.

Given the time and effort required to set an extended fraud alert, we only suggest that consumers who have seen specific inconsistencies in their credit report or other proof that they are at imminent risk for identity theft opt to set them up. Consumers that feel their is a potential risk because they have been part of a data breach, for example, or are just looking for an additional layer of preventative protection would be better off using an initial fraud alert. Initial fraud alerts can be set by the individual or by using an identity theft protection service such as LifeLock.

Credit Freezes

Credit freezes lock down your credit report so that only you or any companies where you have a pre-existing relationship may have access it. No new lenders will be able to access your credit file at while a credit freeze is in place. This means that even if you attempt to legitimately apply for credit in your name with a new lender they will not be able to access your credit information. It is possible, for an additional fee, to temporarily remove a credit freeze if you need to allow a new lender to access your credit report for any reason.

Credit freezes are extremely effective tools in preventing the new account fraud type of identity theft since they essentially take your credit report "off the market". They are also a good tool for the elderly or other people that don't anticipate any need for new credit in the foreseeable future since credit freezes eliminate the risk of new accounts being opened fraudulently. Like fraud alerts, however, credit freezes are only effective at preventing account fraud and do little or nothing to prevent identity theft perpetrated against existing accounts or accounts where a credit file is not used to issue credit (this is the case with some utility or cell phone accounts).

The process of setting a credit freeze varies greatly from state to state. For example, most states allow anyone to set a credit freeze while others require that a consumer be able to prove they are at risk for identity theft before they can be set. Consumer Reports offers and excellent guide to the credit freeze laws by state which includes information on how to set freezes. You can view that guide here.

Generally, setting a credit freeze requires contacting the three major credit bureaus, Experian, Equifax and TransUnion, and paying a fee to each of about $10. The credit freeze will remain in effect until it is either temporarily lifted or removed. If you set a credit freeze and want to temporarily remove it you will have to make a request to each of the three credit bureaus and pay an additional fee to each to have the freeze lifted. You must then contact each of the credit bureaus in order to have it reset. A credit freeze may be permanently removed by making a request with each of the three credit bureaus.

TrustedID, one of the identity theft protection services we have reviewed, is the only service we have found which allows consumers to set credit freezes with all three credit bureaus over the Internet. As a subscriber to the TrustedID service, you may set and manage your credit freezes through your TrustedID account. We see this as a major benefit and convenience for any consumer that feels a credit freeze is right for them.

Credit freezes are really only realistic for consumers that know they are actively being victimized by or in imminent danger of identity theft or for people that have no need for additional credit in the foreseeable future.

Conclusion

If you are at risk for identity theft or a current victim, the choice whether to set an initial fraud alert, extended fraud alert or credit freeze will greatly depend on your personal circumstance.

Initial fraud alerts are a fairly easy to set up and maintain way to get a good layer of protection for new account fraud. They are relatively easy to set up yourself or can be managed by third party identity theft protection services such as LifeLock. While initial fraud alerts will add a layer of additional complexity when you try to legitimately obtain new credit in your name they are unobtrusive enough to be kept in place over long periods of time. Although, admittedly, this is not their intended use.

The credit bureaus would likely prefer that only identity theft victims set initial fraud alerts as there is the potential risk that lenders could stop taking initial fraud alerts as seriously if too many consumers have them set on their credit reports. That being said, it is up to each person to determine whether they feel that they need this type of protection. Some people may believe, given the explosive growth of identity theft in this country, that any consumer could reasonably be at risk for identity theft at any time. LifeLock is an identity theft protection service that sets and manages initial fraud alerts on behalf of their subscribers.

Extended fraud alerts are a more thorough level of protection above initial fraud alerts. They are best suited for those that are either being victimized or have seen inconstancies in their credit report that lead them to believe they may be victimized by new account identity theft. Extended fraud alerts are also a better option than credit freezes for consumers that believe they will have an imminent need to legitimately secure credit from lenders in the future since they don't completely lock off access to your credit report by enders.

Credit freezes are most effective for those consumers that believe they are currently being victimized or are at risk of new account fraud and don't believe they will have any need to secure credit from lenders in the foreseeable future. The elderly, many of whom may not need additional credit in the future, are an good example of a population that could benefit from the use of credit freezes. TrustedID is an identity theft protection service that allows consumers to set up and manage credit freezes online.

It is important to reiterate that any of these solutions are only effective in preventing certain types of identity theft including new account fraud. We recommend that consumers educate themselves on the risks of identity theft and identity theft prevention techniques by reading the FTC identity theft prevention website. Additionally, those interested in learning more about identity theft prevention services should read our guide to identity theft protection services.

Finally, don't forget that identity thieves are increasingly targeting children. Read our guide to Child Identity Theft Protection to learn more about safeguarding your kids from identity thieves.

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