Should You Freeze Your Credit?

Computer hacking and data breaches have caused a lot of people to take another look at their personal credit information that can be accessed online. But first, it’s good to understand how your information is presented.

if you don’t know the difference between your credit report and your credit score, you are not alone. They certainly sound similar, don’t they? But they are quite different.

Credit Report
A credit report includes information about your credit agreements, both past and present. It lists your credit card accounts, mortgages, student loans and any inquiries about your credit history from outside parties. For example, when you apply for a car loan, your credit report includes the name, date and information requested about you. It lists how much you owe creditors, when you opened each account and if your payments are on time or consistently late. It will also show collections and bankruptcies.

There are three different credit reporting agencies: Experian, TransUnion and Equifax. The Fair Credit Reporting Act allows you access to one free credit report every year from each of these agencies. To request your free annual report, visit annualcreditreport.com, or you can dial by phone to 1-877-322-8228. There is also an address to mail a downloaded request form. What you see on your credit report is what lenders see when you apply for a loan or credit card.

Keep in mind that the free annual credit report will not contain your credit score. To access your credit score for a fee, you can either contact one of the three agencies above, or pay a credit monitoring service. Some banks and credit card companies now freely supply credit scores to their customers.

Credit Score
A credit score is a three-digit number, typically from 300 to 850, that is a grade given to your credit report. Think of a credit score as you would a grade from a teacher, the higher, the better.

If you request your score from all three reporting agencies, you may get a slightly different number from each one, but if they are vastly different, you will want to check your report for any errors. If you do find discrepancies, dispute them until they are cleared. It’s also important to check your report regularly to ensure that no fraudulent accounts have been opened in your name.

Together, both credit reports and scores help lenders decide whether to extend you credit. But prospective employers, insurers and rental property owners also look at your credit report.

Credit Freeze
After the giant Equifax breach of 2017, many people wondered about “freezing their credit” to deter fraud on their accounts. Equifax said that internet hackers stole Social Security numbers, birth dates, drivers licenses and more from over 140 million people.

So, if you would like to restrict access to your credit report, you may employ this tactic, also known as a security freeze. Fees vary for this request, but commonly run from $5 to $10. This tool makes it more difficult for identity thieves to open new accounts in your name, because creditors need to see your credit report before approving a new account. If they can’t access your file, they won’t open the account. Know that to freeze your credit, you must contact each of the three agencies separately, or it won’t work.

Many people worry that a credit freeze will negatively affect their credit score. This is not the case. And you can still get your free annual report. What you will want to do, though, in case you want to open a new account, is to lift the freeze temporarily, either for a specific time period or for a specific party.

Keep in mind that a credit freeze does not prevent thieves from charging to your existing accounts, so continue to monitor transactions. Also, if your report is frozen, existing creditors or debt collectors will be able to access it, as well as some government agencies in response to a court or administrative order, a subpoena, or a search warrant.

A credit freeze is not the same as a fraud alert. A credit freeze locks your credit, whereas an alert allows creditors to see your credit report as long as they take steps to verify your identity. For example, a business must call you to verify whether you are the person making the credit request.

There are three types of fraud alerts. An initial fraud alert will protect your credit for at least 90 days. An extended fraud alert will protect your credit for seven years. An active duty military alert is for those deployed and lasts for one year.

Perhaps soon, we will have alternatives to posting our data online. Iris scans, voice and facial recognition could be options. But until then, it’s a good idea to keep a close eye on your personal identity and protect what’s yours. ■

Sources: ftc.gov, annualcreditreport.com and usatoday.com.