"I think for anyone who is extremely concerned about the prospect of identity theft, there is no better tool than a credit freeze," says Joe Ridout, consumer services manager with the nonprofit consumer rights group Consumer Action. That's especially true for the elderly, who may already have all the credit they need but still remain susceptible to fraud.
Ironically, those who sell credit freezes don't like them much. "Freezing your credit file is an extreme step that removes you from the credit marketplace," says Rod Griffin, director of public education with the credit bureau Experian. "It is still very important to understand that freezing your credit file will not prevent identity theft, although it is often misrepresented in that way," Griffin says. Freezes, for example, don't prevent fraudsters from accessing an existing card account, if they already have the necessary information. In place of credit freezes, the credit reporting industry typically promotes credit monitoring services, which bureaus and banks sell to their customers, or fraud alerts, which are available for free from the credit bureaus and do not block access to credit reports.
The basics of credit freezes
Credit freezes go further than either credit monitoring or alerts, however, by making credit reports inaccessible to lenders and others who might have an interest in viewing a consumer's credit history. Available from each of the three major credit bureaus, the credit freeze comes at a price -- anywhere from free to $20 per bureau, with the cost determined by each individual state's laws -- but will remain in place indefinitely, provided the consumer doesn't remove the freeze.
That's different from other fraud prevention tools. Critics of fraud alerts say even when they are in place, not all lenders take the step of notifying a borrower about credit inquiries. They also argue that credit monitoring -- which must be renewed every year or so -- only lets borrowers know that fraud may have taken place. But by then, it's already too late.
Consumer advocates say that credit freezes typically cost less than other options and are even free for some consumers. "A credit freeze is both cheaper and far more effective than credit monitoring," says Ridout. He says that although credit monitoring services have millions of subscribers, they remain an "unambiguous waste of money." Only a small one-time fee -- often $10 to $20 -- is required to place a credit freeze at each of the three bureaus, while credit monitoring can cost the consumer $120 or more each year, says Paul Stephens, director of policy and advocacy with the nonprofit Privacy Rights Clearinghouse.
For many consumers, "it would be much more economical to obtain a security freeze and make a one-time payment, which would be the case for most people, and then be done with it," he says.
Credit freezes are also becoming easier to use. "We have been able to make significant improvements in the credit file freezing process since it was first instituted several years ago. In most instances, freezes can be lifted via the Internet or telephone in a matter of minutes," says Experian's Griffin. (See "The cost of a credit freeze" on this page for more information.)
So who's the best fit for a credit freeze? "The advantages of a credit freeze rise with age," says Ridout. That's because younger consumers tend to frequently apply for credit cards, mortgages and new jobs, while senior citizens have less need for credit but more reason to be cautious. "As people get older, it's been shown that the time necessary to recover from identity theft tends to go up," Stephens says. Plus, there comes a time when getting approved for more credit just isn't necessary. "At a certain point in life, you may have all the credit you need," Ridout says.
People involved in nasty divorcesmay also want to consider freezing their credit, since their spouse may have all the information (name, Social Security number, etc.) needed to open new accounts in their identity, says Stephens.
One credit freeze does not fit all
Unfortunately, the steps required to freeze credit aren't always clear. With no federal credit freeze law in place, consumers are left to navigate a patchwork of state laws. Consumer advocates acknowledge that this can present a challenge. "There really is no uniformity in terms of the costs and time frames for both placing and lifting credit freezes. You do find a tremendous difference from state to state," Stephens says. Some states don't even have credit freeze laws. According to advocacy group Consumers Union, 47 states and the District of Columbia have enacted laws requiring credit bureaus to allow credit freezes. (Credit freezes are offered voluntarily by the bureaus in the three remaining states -- Alabama, Michigan and Missouri.)