Free Credit Freezes and What You Need to Know
According to the Justice Bureau statistics, in 2014, approximately 17.6 million people over 16 experienced at least one incident of identity theft. The most common losses due to identity theft are the misuse or attempted misuse of an existing account. Roughly 8.6 million people annually experience credit card fraud, with two-thirds of victims reporting a direct financial loss. Those who were victims of fraud in the form of new account openings in their name experience higher out of pocket financial losses.
The Equifax breach in 2017, exposing the personal data of over 150 million adults, caused Congress to act. They determined that individuals need more control over credit report access, and now require the three major credit bureaus to allow consumers to freeze credit files without fees.
With consumer identity theft an ongoing problem, it is important to protect access to your credit file. Here is what you need to know about a credit freeze and the new law.
What Is A Credit Freeze?
A credit freeze protects your accounts and prevents the creation of new credit by severely limiting access. With limited exceptions, a third party cannot view your credit file while you have a credit freeze in place.
The benefit is that you can prevent a cyber thief from taking out new credit. The downside is that when you want to authorize a third party to view your report, you must unlock and then refreeze your credit file. Today, many companies want to review your credit. Third parties could include a lender, apartment rental agencies, an employer, a utility company, or even your insurance agent.
Freezing Procedures Prior to the New Law
The cost to put a freeze on your credit file varied by state. Some states granted, free access, while others allowed credit bureaus to charge fees up to $10 each time you made changes to the status of your credit file. For example, a loan application requiring a credit review could result in the need to lift the freeze and then reinstate it at all three credit bureaus. With costs up to $10 per event, per credit bureau, you could spend $60 to allow one company to review your file at the three credit bureaus.
An exception exists for those who can prove identity theft, with evidence such as a police report. With evidence, you could place the initial freeze without charge.
To activate a credit freeze on your file, you must apply through each credit bureau separately and pay fees to each establishment. It can be a time consuming and expensive process to protect your account from predators. Consumers do not use credit freeze frequently because of the expense and difficulty.
When Should Consumers Use A Credit Freeze?
A credit freeze is the strongest security available to protect your financial information from identity theft or credit fraud.
Effects of the New Law
On May 24, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act became law, granting you access to free credit freezes at all three credit bureaus (Equifax, Experian, and Trans Union). You can also lift and re-freeze your credit file at any time, without cost.
You must still contact each credit bureau independently to place a freeze on all three accounts because a freeze at one credit bureau will not automatically extend to the other two credit bureaus.
Each major credit reporting agency must create a webpage, allowing you to request either a credit freeze or fraud alert at no charge. Once established, the credit bureaus will post the webpage links on IdentityTheft.gov.
Fraud Alerts and the New Law
Unlike a credit freeze, where a third party has no access to your credit file, a fraud alert, grants access, with a warning that you may be a victim of identity theft. The lender or third party must then take additional steps to verify your identity to ensure they do not extend credit on a fraudulent application.
The current law allows consumers a free fraud alert for 90 days. The new law extends the alert to one year, without the need to prove fraud occurred. Victims of identity theft can extend the fraud alert for up to seven years. When contacting one credit bureau, the bureau notified must contact the other two, simplifying the process.
The new law also provides more extensive protections for service members. Within the year, credit bureaus most provide free electronic credit monitoring to all active duty military.
The Credit Bureaus and Credit Locks
In response to the new law, all three credit bureaus, now offer a paid service, making it easy to lock and unlock your account at any time. The Credit Lock Service provides a similar service as a credit freeze. However, it uses a smartphone app, making it easier to complete the process at each of the three credit bureaus.
Each credit bureau handles credit locks differently, and there are differences between a credit lock and a credit freeze. The new law sets the rules regarding credit freezes. The credit bureaus control both the definition and the cost of credit locks, which can change over time.
When Can Consumers Start Freezing Their Credit?
The new updates, go into effect in late September 2018. At that time consumers can freeze and lift the freeze on their credit files at any time without incurring fees. If you choose a credit locking app, it will cost around $20 per month for the convenience.
How to Freeze a Credit File?
You can freeze or thaw your credit file over the phone or through an online form found on each credit bureau website. Once enacted, you receive a personal identification number (PIN). Before applying for credit or granting access to your file, you must return to the website and enter the PIN number to lift the freeze.
Can A Freeze Protect Your Child’s Credit File?
The new law allows parents or guardians of children under the age of 16 to freeze their credit file. However, many children will not have credit. In this case, the new law instructs the credit bureau to create a credit file for the child and then freeze it. The policies and strategies to freeze a child’s credit vary by state and credit bureaus.
Placing a freeze on a child’s file can prevent fraud on the account before the child is old enough to have credit.