Credit Freeze vs. Fraud Alert

Fraud Alert Verse Credit FreezeIn a world in which evil hackers seem always to be at least a half-step ahead of good guy security geeks, regular folks are taking steps to protect themselves from cyber thieves.

Two of the most popular methods are the credit freeze and fraud alerts.

A credit freeze means no one – including you! – can access your account or secure new credit in your name without paying to thaw the account.

A credit fraud alert is an alarm to companies looking at your credit history that you may be the victim of identity theft and they should be careful and verify all the information they see.

Once upon a time, there were good arguments to make on behalf of each. That, however, might have changed in the wake of the massive breach of Equifax’s systems last summer, a hack that exposed more than 145 million Americans’ personal information to identity thieves.

The fallout has been alarming, with innocents fearing that each trip to the mailbox will bring fresh news of credit victimization. Hundreds are suing Equifax.

In an expansive apology published last September in the Wall Street Journal, Interim CEO Paulino do Rego Barros Jr. announced a series of fixes, the most significant of which is this: Early in 2018, Equifax would offer a free, no-hassle, lifetime credit lock option.

This bears scrutiny from all consumers.

When it comes to proactively keeping mischief-makers out of our financial lives, credit freezes (also known as security freezes) and fraud alerts have long been the preferred options. As with almost anything involving money, each has its benefits and its drawbacks.

With an eye to the revolutionary Equifax plan — which could put welcome pressure on its Big Three competitors to fall in line on behalf of consumers — let’s check out the pros and cons.

All about fraud alerts

For those worried about being targeted for identity theft — and these days who isn’t? — a fraud alert has been the most convenient way to throw up a prevent defense.

Fraud alerts, also known as an Initial Security Alert, are a 90-day warning placed on your credit file. Lenders who pull your credit report are alerted you possibly are an identity-theft victim. (Even if you’re not.) Companies are thus cautioned against granting credit to the applicant without taking additional steps to confirm your identity. Oftentimes this involves talking with you over the phone.

There’s plenty of upside to a fraud alert. It’s easy to initiate: Request it from any one of the Big Three — Experian, TransUnion, Equifax — and it will be added automatically to the other two. It’s free. It allows you to be prudent without cutting off access to your credit report.

And it has absolutely no effect on your credit rating. Zero. Zilch. None.

You will be able to pursue all the usual credit-report-enhancing activities: opening new accounts, making timely payments, paying more than the amount due, and so on.

Also, there is this: You can re-up for a second (and a third, and a fourth, and so on) 90-day fraud alert period at the conclusion of the first.

For those serving in the military, there’s also the one-year Active Duty Alert for those called to service away from their usual posts. It acts much like an Initial Fraud Alert, but, additionally, removes the service member’s name from prescreened credit offers for two years.

A benefit of each fraud-alert request — the initiating application and the subsequent renewals — is you’re also eligible for a free credit report. That’s 15 free reports each year (the quarterly on-renewal updates from each of the Big Three, plus your annual report). For the budget-conscious, that allows you to keep a fairly close eye on your credit situation for far less than any credit-monitoring service.

Finally, no documentation is necessary to initiate a 90-day fraud alert. Not an identity-theft report or any other sort of official action. Your ability to sleep better is all that is required.

Extended fraud alert

Suppose you’re like one of the victims — or are, in fact, one of the victims — of the Equifax breach. Extended fraud alerts, up to seven years, are available to those who can document identity theft.

You must be able to document your identity as well as provide an investigative or incident report filed with law enforcement, the

Postal Inspection Service, or your state’s Department of Motor Vehicles.

While an extended fraud alert may provide long-term peace of mind, there’s a downside: You’ll be cutting yourself out of all those quarterly credit reports accessible to those who renew every 90 days.

Credit freeze: the superior option

How do we know freezes are better than fraud alerts? Because, in his elaborate mea culpa, Equifax’s Barros admitted as much. Although they are not exactly the same — Equifax says “locks and freezes are similar, but not identical” — Barros’ all-free lock-on, lock-off plan gave away the ballgame.

The fine print may be everything here. Credit freezes are state regulated; if your report is compromised under a freeze, you have a right to your day in court. Agreeing to Equifax’s credit lock provision, National Consumer Law Center attorney Chi Chi Wu told CNN, might also preclude suing the company if things go south.

So, with the might of state regulators behind you, credit freezes do one very cool, extremely important thing: Upon orders by you to the three primary credit reporting agencies (accompanied, usually — for now — by a small fee, up to $10), your credit report goes into cold storage.

Notably, the freeze fee is waived for actual victims of identity theft. No sense adding costly insult to injury.

Once frozen, no one can secure new credit in your name, especially not the person who acquired your name, address, birthdate, Social Security number, driver’s license number and such swept up in the Equifax security breach … or the next.

Know this: If you’re married, your application for a credit freeze does not include your spouse. Both partners have to apply for a freeze to block access to joint accounts.

Know this also: Neither a fraud alert nor a freeze will prevent fraud from being perpetrated against your existing accounts. Additionally, unlike fraud alerts, you must contact each of the reporting agencies individually.

Good to know: Like fraud alerts, a credit freeze will not harm your credit rating.

There’s just serious one catch. (Isn’t there always?) With the credit freeze in effect, that “no one can secure credit in your name” part includes you.

With a security freeze/credit freeze in effect, companies cannot access your credit report, period. That keeps outsiders from acquiring credit in your name, but it also blocks companies you need to rule on your worthiness from accessing your history.

The difference is, in the event you need to allow a search of your credit history — for new employment, taking out a mortgage, getting the water and electricity turned on at your new place — the credit reporting agencies will have supplied you with a PIN you can use (along with, probably, another small fee, up to $10) to thaw your account.

Traditionally, thawing your report can take a little time, up to three days. Two things can help alleviate the headaches: Planning ahead, and discovering which credit-reporting agency the company you’re dealing with uses; there’s no point in thawing

your TransUnion and Equifax accounts — at $10 a pop — if the lender consults only Experian.

Meanwhile, it’s up to you to decide whether the combination of small fees and delays is a deal-breaker. For Wall Street Journal Editor Jim Winston, who froze his credit reports more than 10 years ago, the result — even given the occasional inconvenience — has been “years of peace of mind,” and he would recommend it to others.

These days, you can’t be too careful.


Sources

Barros Jr., PDR (2017, Sept. 27), On Behalf of Equifax, I’m Sorry, https://www.wsj.com/articles/on-behalf-of-equifax-im-sorry-1506547253

Werner, A. (2018, Jan. 9), Months after massive Equifax breach, victims struggling to recover, https://www.cbsnews.com/news/equifax-data-breach-victims-struggling-to-recover/

Henson, S. (2017, Sept. 15), What Is the Difference Between a Credit Freeze and Fraud Alert? https://www.experian.com/blogs/ask-experian/what-is-the-difference-between-a-credit-freeze-and-fraud-alert/

Lobosco, K. (2017, Sept. 28), Equifax will offer free credit locks. Here’s what that means for you, http://money.cnn.com/2017/09/28/pf/equifax-credit-lock/index.html

Singletary, M. (2017, Sept. 24), Deciding the right path for shielding your credit report? https://www.washingtonpost.com/business/get-there/2017/09/22/37cec09c-9f1e-11e7-9083-fbfddf6804c2_story.html?utm_term=.1f71f96466b3

NA (NA) Extended Fraud Alerts and Credit Freezes, https://www.consumer.ftc.gov/articles/0279-extended-fraud-alerts-and-credit-freezes

Hamby, J. (2015, July 9), Fraud Alert Vs. Security Freeze — Which Is Right For Me? http://www.datafacts.com/lendingsolutionsblog/fraud-alert-vs.-security-freeze-which-is-right-for-me

Winston, J. (2017, Sept. 13), I’ve Frozen My Credit for 10 Years. It’s a Hassle but Worth It, https://www.wsj.com/articles/ive-frozen-my-credit-for-10-years-its-a-hassle-but-worth-it-1505330595