fraud alert or credit freezeIn the wake of the fallout surrounding the Equifax data breach and some faux pas by other credit bureaus, consumers have been forced to take up the role of being the sole guardians of their most sensitive information. Although it has always been important to monitor one’s credit reports and play an active role in checking one’s credit scores, the Equifax breach (among many others this year) officially signals a new era in which consumers can no longer rely on institutions to protect them. As such, many might be wondering if placing a fraud alert or credit freeze on their credit reports could be useful. In this post, we’ll go into detail about the effectiveness and limitations of both choices, so that you can know the best options available to you.

What exactly do alerts and freezes do?

While credit alerts and freezes are often compared to one another, they couldn’t be more different. Here’s how these credit-protecting tools work and differ from one another:

Fraud alerts

Fraud alerts are notes that are added to all three of your credit reports to let future lenders know they need to contact you to verify your identity before approving any new credit. For example, if you apply for a credit card while you have an alert on your credit reports, you should receive a call from the card issuer to ask you additional questions to confirm your identity. While fraud alerts can be one way to take extra steps to protect your credit, they aren’t the most effective way. That’s because fraud alerts heavily depend on a lender or issuer to take extra steps, and the reality is they don’t really need to take these steps to open a credit account.

Placing a fraud alert is rather simple, as explained by the FTC. In fact, all you have to do is contact one of the credit reporting bureaus and request a fraud alert. They should ask you if you want them to alert the other two bureaus on your behalf, and once you accept, you’re all set. The fraud alert is free and will stay on your credit reports for 90 days (note that you can get an extension if you’re a victim of identity theft).

Credit freezes

On the other hand, a credit freeze completely locks down your credit for an extended period of time, meaning that no new accounts can be opened by you or anyone else. Although you can still check your credit reports and scores while your credit is frozen, a lender, utilities provider or anyone else will not be able to pull your credit. As such, if you wish to apply for a new credit card, loan or any other type of account, you can temporarily or permanently freeze your credit (keep reading to learn more about the “thawing” options). Something else worth noting is that credit freezes do not always last forever. Although most states will keep your credit frozen until you remove the freeze, there are a number of states that will only keep your reports frozen for seven years.

Freezing your credit requires a more work than a fraud alert because you have to contact all three of the credit bureaus — note that one credit bureau will not contact the others for you. In addition, a credit freeze may cost money (usually about $5 to $10 per bureau, according to the FTC), depending on your state of residency. Since you have to freeze all three credit reports, freezing your credit can end up being quite expensive. It should be noted that Equifax credit freezes are free through Jan. 31, 2018. Additionally, if you’re a victim of identity theft, and you have an identity theft report, you can freeze all three of your credit reports for free in many states.

Something to also note about a credit freeze is that while it doesn’t prevent you from continuing to use the credit accounts you already have, you will have to “thaw out” your reports whenever you plan to apply for a new credit account or someone needs to check your credit, as we mentioned above. You can either temporarily lift the freeze for a set amount of time (you can pick the dates you want it to be unfrozen), or permanently lift the freeze. Keep in mind that if you choose the former, you’ll be required to pay a fee to each credit bureau in order have the freeze added back to your credit reports. Additionally, just like when you place a freeze, you’re required to alert all three of the bureaus of the temporary or permanent lift.

Can I still fall victim to identity theft with a freeze or alert in place?

While alerts and freezes are very useful tools for consumers, they aren’t without limitations. Credit freezes are very effective, but they also offer a unique problem. Though credit freezes can prevent new credit accounts from being opened, they can’t stop other types of identity theft, such as tax identity theft or medical identity theft. Even within the category of financial and credit-based identity theft, abuse of existing accounts is far more common than the opening of new accounts under someone else’s identity, which is why it’s essential for you to monitor your credit card statements every month and report any unfamiliar transactions.

Fraud alerts, on the other hand, don’t stop abuse of your credit because they are only designed to bring attention to any new credit application. Creditors who spot fraud alerts on credit reports are to take extra due diligence when lending to anyone using your identity (including you) and the process is supposed to include extra steps designed to encourage this. However, because there are no laws formally enforcing fraud alert rules, some creditors responding to your fraud alerts might not be rigorous enough when vetting your identity — if they even contact you at all. This means that new credit accounts can be opened in your name even if you have a fraud alert in place. Similarly, fraud alerts will not protect you from the other types of identity theft we noted in the previous paragraph.

How can I keep my identity safe?

Protecting your credit ultimately comes down to many of the same habits needed to help you maintain good credit. This mostly means monitoring your credit reports, scores and accounts as frequently as possible so that you can pick up on errors or other types of abnormalities as quickly as possible and act appropriately. While you can choose to freeze your credit, it’s important for you to understand that you still need to be proactive when it comes to checking your existing credit card and bank account statements. Additionally, it doesn’t hurt to keep tabs on your credit scores, as quickly falling credit scores are often a sign something is not right.

In addition to monitoring your credit and financial accounts, you’ll need to be on the lookout for other types of identity theft. For example, make sure to file your taxes as early as possible to snuff out the chances of tax identity theft happening to you. To prevent medical identity theft, you’ll want to read any Explanation of Benefits you receive and confirm the services noted there are accurate — report any medical services you did not receive to your insurance provider. When it comes to personal information, you’ll want to make sure you store documents properly and limit the information you share on social media, as you could be revealing your own identity online. Finally, you should change your account passwords every six months or sooner, especially since we live in a world of data breaches.

While nothing you can set and forget to protect your identity, there are tools, like fraud alerts and credit freezes, that can help take steps in the right direction. For more information about keeping your identity safe, follow our identity theft protection blog.