Defend Against Identity Theft with a Credit Freeze!

Posted: May 4, 2015 in Consumer issues, identity protection, Personal Finance
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A serious issue for consumers and law enforcement since the mid-1990s, identity theft and credit card fraud are still a growing problem in the United States.  Consumers can protect themselves by imposing credit freezes on their credit reports, all but eliminating any chance of this type of identity theft. Remarkably few Americans, though, are aware of this virtually foolproof way to protect against identity theft.

How Identity Theft and Credit Card Fraud are Related

Criminals acquire consumers’ personal information from a variety of sources and use it to file fraudulent credit applications. Lenders double-check the material on credit applications with one or more of the three credit reporting agencies, and if the credit report is positive, credit is usually issued. Thieves access the new accounts to purchase easily sold goods, saddling the victim with the costly and time-consuming job of restoring a ruined credit rating.

Third Party Monitors – A Costly, Ineffective Approach

Preventing identity theft by securing consumers’ personal data is virtually impossible, because the number of ways thieves can acquire the information is almost unlimited. In addition, of the countless companies and other organizations that have confidential consumer information, all it takes is a single breach of a single organization’s databank to compromise that information – and render irrelevant the security at all the other places. Nevertheless, many Americans pay high monthly fees for a third party to “monitor their credit” – that is, review their credit reports periodically and alert them to any suspicious activity such as new accounts being established or address changes recorded.

Credit monitoring is a cumbersome and inefficient approach to identity theft.  Some monitoring agencies will make monthly reports and expect the consumer to review and approve them, making the security process more cumbersome.  In addition, because the monitoring agencies report activity that’s already taken place, by the time the consumer learns about it, thieves may already have struck.

Most credit monitoring agencies promise to reimburse the consumer all costs of restoration of credit if it’s compromised, and some agencies do the restoration work themselves.  This is cold comfort when one considers that the criminal activity could have been prevented outright.

A Credit Freeze is a Better Alternative

Criminals cannot be stopped from acquiring consumers’ personal data or from filing fraudulent credit applications. Lenders, however, will not extend credit to those for whom a credit report is unavailable.  When a credit freeze is imposed, the credit bureau cannot issue a credit report, and the lender will not extend credit.

Setting up a credit freeze is easier, cheaper and more effective than any other program available to consumers. To freeze one’s credit with all three agencies can take less than half an hour and cost no more than $30.

All three credit reporting bureaus – TransUnion, Experian and Equifax – allow consumers to impose freezes online or by certified mail. TransUnion also permits freezes to be set up by phone. The exact cost for credit freezes and temporary thaws varies by state and other variables – in most states, for example, victims of identity theft are able to establish a freeze at no cost, and senior citizens get discounted rates in many states.

Consumers who’ve frozen their credit are able to “thaw” the freeze temporarily to allow a lender access to their credit report. This simple process can also be done online, by phone or by mail, utilizing a secret code set up when the credit freeze was established. In many cases, consumers can identify the lender(s) authorized to view their reports.

Note that a credit freeze won’t stop adverse information from being added to a credit report; consumers who temporarily thaw their credit reports should first obtain and review a copy to ensure its accuracy before permitting a third party to access it.

Opposition to Credit Freezes

Many groups oppose credit freezes, to varying degrees. Until 2004, when federal legislation mandated that they give consumers a free credit report annually, the three credit bureaus exercised absolute control over credit reports, and were very reluctant to share the information contained in the reports with consumers, even to let them correct inaccurate information. A credit freeze gives consumers far more power than they’ve ever had in the credit arena.

Lenders and retailers, for their part, oppose credit freezes because they limit consumers’ impulse spending. Lenders make money by issuing credit, and retailers earn commissions when consumers use their store to apply for a new credit account. Even though a temporary thaw of a frozen credit report is very easy, and usually cheaper than imposing the freeze, credit freezes put a significant damper on the kind of impulse spending associated with opening new credit accounts.

Take Charge of Your Credit and Fight Back!

A credit freeze is probably the easiest, cheapest and most effective weapon the average consumer has in combating identity theft, and should be the first weapon used by anyone concerned about the security of their credit reports.

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