What is a credit freeze?

A credit freeze, also known as a security freeze, is a tool that allows individuals to lock or restrict access to their credit reports — offering some protection against identity theft.

How does a credit freeze work?

A credit freeze stops potential creditors and lenders from accessing an individual's credit report, preventing unauthorized persons from opening new credit lines in someone else’s name. So, in the case of identity theft or a data breach, activating this service can be important since it prohibits credit bureaus from disclosing the contents of a credit report to anyone requesting the information. Lenders will usually not extend credit to anyone claiming to be the user during this period.

Credit bureaus collect and maintain records of individuals’ borrowing and repayment activities and are responsible for the safekeeping of credit information. Three major credit bureaus play a pivotal role in the credit freezing process. They are:

• Experian
• Equifax
• TransUnion

To better understand the benefits, a credit freeze can be compared to locking the front door of a house. Just as locking the front door prevents unauthorized entry, a credit freeze restricts access to an individual’s credit report, making it harder for cyber criminals to open new accounts in someone else’s name and commit fraud.

Other forms of credit protections exist, such as fraud alerts, credit monitoring, and credit locks. These are akin to locking only a specific room, or in the case of credit monitoring, using cameras to monitor attempts to gain access.

Other protections may be helpful, but they don’t provide the same level of comprehensive security as a credit freeze.

How to freeze your credit

A credit freeze is a free process and can be done online, by phone, or by mail. Here's how to do it:

• Gather personal information, such as Social Security number, birth date, and address.
• Contact each credit bureau using the details on their respective websites.
• Create an account on each credit bureau's website to receive the PIN or login details needed to freeze or unfreeze a credit report.

When to consider a credit freeze

A credit freeze may be needed in several situations, including:

• Protection against identity theft and card skimming. Initiating a credit freeze prevents unauthorized opening of accounts in an individual’s name. It also stops usage in the event of fraud efforts like card skimming, where thieves use skimmers to scan a card’s magnetic strip and steal sensitive information, or a phishing attack, where scammers trick individuals into giving away their personal or financial information online or via text and email.
• Stolen wallets or documents. Placing a credit freeze provides immediate protection against potential misuse of an individual’s lost or stolen documents.
• Long-term protection. A credit freeze provides ongoing security without the need for constant monitoring.

Common misconceptions about credit freezes

A credit freeze may carry several misconceptions, such as:

• Credit freezes are expensive. Freezing and unfreezing credit is free for all consumers in the U.S.
• You only need to freeze your credit with one bureau. A credit freeze must be implemented with each of the three major credit bureaus to help ensure full credit protection.
• Credit freezes affect all types of financial transactions. Credit freezes only affect new credit applications that require access to a credit report. They don’t prevent an individual from using existing credit cards, bank accounts, or other services.
• Freezes are permanent. A credit freeze can be lifted.

Impact of a credit freeze on credit score

A credit freeze doesn’t have any effect on an individual’s credit score. However, since a credit freeze prevents potential lenders from accessing a credit report, a new application for credit — be it a credit card, loan, or a mortgage — may be denied unless the freeze is unlocked or lifted to allow access to the report.

Potential pros and cons of freezing credit

While it may seem like a simple decision to freeze credit for safety purposes, there are some potential pros and cons to consider before initiating a security freeze.

Potential pros of freezing credit

• Security against fraud. Freezing credit can lower the risk of fraudulent activities, including many common online scams.
• Peace of mind in case of data breaches. Knowing that a credit freeze is in place may take the worry away for consumers affected by a data breach, as fraudsters will find it difficult to use stolen information to open accounts in a victim's name.
• Overall long-term security. A credit freeze provides ongoing protection against identity theft and unauthorized account openings, ensuring that personal financial information remains protected.

Potential cons of freezing credit

• Inconvenience of having to lift the freeze for any credit inquiries. An extra step would be required when applying for new credit, such as a loan or credit card, as the credit freeze would have to be temporarily lifted.
• Potential delays in applying for new credit. Lifting a credit freeze may take some time, leading to potential delays when applying for a new bank account or getting approved for a loan.
• Mismanagement risks. Losing the PIN or login details provided by the credit bureaus may make it challenging to manage the credit freeze.
• Potential impact on other services. While a credit freeze doesn’t affect existing accounts, some situations — such as increasing the credit limit on an existing credit card — may require access to a credit report, which could be affected by the freeze.

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