Protecting our financial future has always been a priority, and this is precisely what we do to build our credit successfully. However, criminals may try to take advantage of what we work hard for.
If you find yourself a victim of fraud, thankfully, there are protective measures you can take. A fraud alert or credit freeze can be helpful, but what’s the difference?
Choosing the right option ensures you get the credit safety you need, so we looked into official sites of the credit bureaus and gathered more info from authoritative sites to understand how credit freeze and fraud alerts work and when you need them.
We’ve also uncovered the top consideration when choosing between a fraud alert and credit freeze, so don’t miss out on crucial tips and compromise your credit even more.
What is a fraud alert?
Fraud alerts are free notifications you can request for your credit reports. This means that anyone receiving some form of credit application under your name will need to verify their identity before processing it.
It’s helpful because you effectively add a security layer to the application process, which prevents criminals from applying for credit cards or loans, opening bank accounts, and claiming government benefits.
But the question is, how do fraud alerts work, and what happens if you put a fraud alert on your credit report?
Let’s take a look at a quick example. When an authorized bank representative processes your application, they’ll go the extra mile to conduct a credit check through at least one national credit bureau.
The financial institution will put the credit application on hold while a representative from the credit bureau confirms your identity. The criminal will likely be asked for further identification, effectively preventing them from applying for new credit lines.
There are three types of credit fraud alerts, which depends on your current need:
- Temporary fraud alert: This is also called an initial fraud alert because its coverage only lasts for a year. You are also free to add a temporary fraud alert with no requirements.
- Active-duty fraud alert: This is designed to protect service members on active duty and can last for a year.
- Extended fraud alert: This is the most comprehensive of the three because its coverage can last seven years. This is best for identity theft and fraud victims. The only requirement you need will be the police report after filing with law enforcement.
What is a credit freeze?
Also known as a security freeze, a credit freeze alerts and prevents the credit bureaus from sharing your credit report with other parties. This prevents scammers from using your credit information to purchase products, open bank accounts, or apply for mortgages.
One common scenario usually applies to credit card fraud. When a thief applies for a credit card, it’s usually intended for large purchases. The victim will then be left to deal with the incurred debt.
With a credit freeze imposed, however, it will bar all financial institutions from accessing your credit data. This effectively prevents criminals from doing anything with your credit information.
A credit freeze also allows you to control your credit report fully. Under federal law, the top three credit bureaus must comply with your credit freeze request for free.
Does a credit freeze prevent fraud? Credit freezes are helpful tools that can ward off would-be fraudsters, but they aren’t a foolproof answer to all threats.
For instance, if a criminal has already opened an account under your name or has access to your existing accounts, a credit freeze may not do much to protect you.
Even with a credit freeze, an identity thief may steal funds from your existing accounts. Because of this, you should also take additional steps to protect yourself, such as regular credit monitoring and identity theft protection.
Fraud alert vs. credit freeze: Which one is right for me?
From what we can gather, fraud alerts and credit freezes have significant differences. To know which one is right for you, consider the following details:
When should you place a fraud alert?
If you’d like to prevent fraud from occurring, a fraud alert can be a good layer of security for your personal information. This is because fraud alerts notify third-party lenders to take additional measures to verify your identity before letting you borrow money.
It’s also helpful when you suspect someone has compromised your Social Security or credit card number. These alone aren’t enough for criminals to purchase or withdraw money under your name successfully; they must apply for loans and bank accounts.
With a fraud alert on your credit lines, credit bureaus will know when to ask for additional verification that criminals likely won’t have.
Fraud alerts are less extreme than credit freezes because they don’t completely stop you from opening your credit accounts—they only require additional steps for you to do so.
However, you may benefit from a credit freeze if a criminal has all your identifiable information, like your SSN, name, address, and contact number.
It’s also vital to remember that fraud alerts only last for a year (or seven years if you apply for an extended fraud alert), so you’ll have to renew once they expire.
When should you request a credit freeze?
If you have good reasons to think someone has compromised your personal data, you may be better off applying for a credit freeze.
Doing so will help secure your accounts and reduce fraudsters’ ability to access them or open new credit lines.
IMPORTANT
Credit freezes provide more comprehensive protection and also don’t have an expiration in most states. Unlike fraud alerts, you don’t have to reapply for a credit freeze annually or every seven years.
What is the downside of freezing your credit?
Because a credit freeze prevents all access to your credit report and will never expire until you “thaw” or unfreeze it, you can’t apply for credit cards, open bank accounts, or seek out loans immediately.
Thawing your credit will take around 20 minutes to an hour, so you must plan ahead if you need to open an account. Because of this, credit freezes are better for those not planning on applying for new credit cards and accounts.
Despite a credit freeze’s downsides, it protects you from a criminal who already has everything they need to apply for new credit lines.
Can you apply for both a fraud alert and a credit freeze?
Yes, you definitely can. You can request a fraud alert on top of a credit freeze to protect your finances better. However, it cannot stop a criminal from purchasing from existing credit cards.
You need to check your statements carefully, and you must report any suspicious activity to your respective financial institution.
How to place and remove a fraud alert
Fraud alerts are free, and you can set them up quickly by calling or applying online. You can request a fraud alert from Experian, TransUnion, or Equifax. You only have to contact one of the three credit bureaus mentioned above; the one you call will alert the other two.
Here are the contact details of the major credit bureaus:
You must also reach out to one of the credit bureaus to lift a fraud alert from your account. However, remember that fraud alerts last only a year, so you may want to keep it as is and just wait for the expiration date.
How to freeze and unfreeze your credit
While also free of charge, steps to freezing your credit are different from a fraud alert. For instance, you must request a credit freeze from Equifax, Experian, and TransUnion separately instead of contacting just one agency.
Here’s how you can contact the bureaus for a credit freeze:
You’ll also need to provide each credit bureau with the following details:
- Name
- Address
- Date of birth
- Social Security number
- Other personal information
After providing the bureaus with the necessary details, you’ll get a unique PIN set that you can use to freeze or unfreeze your credit. However, keep in mind that only Experian and TransUnion require these PINs.
If you need to unfreeze your credit reports, you must contact each credit bureau individually. You also need to provide the PIN when dealing with TransUnion and Experian.
All credit bureaus must lift your credit freeze within a given period. They typically lift credit freezes within an hour after you call or contact them online.
Can a credit freeze or fraud alert hurt your credit score?
No, a credit freeze can’t hurt or affect your credit score. The only downside of getting a credit freeze is that you won’t be able to apply for a credit card or qualify for a loan unless you unfreeze it temporarily or permanently.
A fraud alert also has no impact on your credit scores. It lets creditors and representatives know when to take the extra mile for verification to ensure they’re not handing your finances to a thief applying for credit using your name.
Conclusion
So, are fraud alerts and credit freezes a good Idea? We say yes! While they can’t protect your personal information entirely, it’s always a relief to know that credit bureaus and financial institutions are by your side.
Knowing which one to get is also necessary because fraud alerts and credit freezes provide different levels of protection, so it’s best to keep the considerations we’ve stated in mind.
Should your personally identifying information end up in the wrong hands, you can rest easy knowing that you still have time to act—especially since your respective financial institutions already know what to do and how to help you. If you’re looking for a sign, this is it!
Aidan has been writing about personal finance for over 6 years. Prior to this, he worked as a Corporate Finance Analyst where he specialized in Due Diligence, Company Valuations and more. He is a CFA charterholder.
