Advanced Personal Finance

Credit Freeze - What, How, Why

Increasing identity theft. Government agencies losing personal data-rich laptops. Hackers breach retailers and data merchants. Is it time for a credit freeze?

What a credit freeze is

A credit freeze is used by someone to prevent their credit files from being shared with others. It places a certain level of security on your credit report by preventing most new accounts from being opened in your name. I say most because it’s possible for a company to extend credit without a credit check.

The prohibition against new credit is even for new accounts you authorize. That is, for you to open new credit lines, you must unfreeze your file.

A credit freeze involves informing the credit bureaus of your intent and, most likely, paying a small fee (typically $5 to $15). You also pay a fee to ‘unfreeze’ your file when you really do want a new account opened in your name.

As of August 2007, 32 states allow consumers to freeze their credit. Eight more make freezes available in 2008.

How to put a credit freeze on your information

The actual logistics of putting a freeze on your account varies by state. Consumers Union maintains this list of each state’s laws and instructions for freezing and unfreezing your file. By the way, I think it’s a freakin’ crime that the federal government hasn’t stepped up with uniform rules that apply across the nation, but whatever.

Why freeze

The benefits of a credit freeze are self-evident. Since no one can get new credit in your name, your identity cannot be stolen for that purpose. This doesn’t preclude the abuse of your stolen credit card account number, but it does stop credit unknown to you from being extended.

Obviously, it’s a pain in the butt to unfreeze and freeze your account when you really do want new credit. I say that’s a small price to pay. When 2008 rolls around (I live in a state where a law hasn’t yet taken effect), I’ll be freezing my file.