Tuesday, July 24, 2007

Freezing your Credit Report not a Panacea

by Doug Pollack

This week Terri Cullen of the Wall Street Journal (July 18, 2007) reported on how to use your credit report to protect against identity theft.

The article includes a lot of useful information on how to "interpret" your credit report and how to correct errors in your credit report. But it also touches on the option that is available in some number of states of "freezing" your credit report.

"As an additional barrier to identity theft, several states allow consumers to issue a "freeze" on their credit reports, meaning that the credit bureau cannot release your credit report to anyone without your approval. Very few lenders are willing to extend credit without seeing a copy of an applicant's credit report, so the freeze generally stops an identity thief from using your information to obtain a loan. If you live in a state that requires a credit bureau to honor your request for a freeze, you still have to initiate the freeze with each credit bureau independently."

While the idea of freezing your credit sounds like a failsafe way to avert identity theft, unfortunately this isn't the case. Identity thieves have become very clever and found ways to misappropriate your identity even with a frozen credit report. There are also a number of "inconveniences" that come into play when you choose to freeze your credit. As Mr. Cullen goes on to state:

"First, it's probably going to cost you unless you've already been a victim of identity fraud. Florida, for instance, allows a credit bureau to assess a $10 fee to place, temporarily lift or permanently remove a credit freeze. And you'll be incurring that fee each time you want to apply for new credit. It also takes a few days to get the freeze temporarily lifted, so no more impulse purchases using a retailer's offer of discounts in exchange for signing up for the store's revolving charge card. And there's the inconvenience of keeping track of the PIN that the credit bureau issues you when you first place the freeze. You'll need that PIN each time you want to lift the freeze."

And while a credit freeze can help keep an identity thief from opening most new accounts in your name, it’s not a means of protection from all types of identity theft. It will not protect you, for example, from an identity thief who uses your existing credit cards or other accounts. There are also new accounts, such as telephone, wireless, and bank accounts, which an ID thief can open without a credit check. In addition, some creditors might open an account without first getting your credit report. And if there’s identity theft already going on when you place the credit freeze, the freeze itself won’t be able to stop it. While a credit freeze may not protect you in these kinds of cases, it can protect you from the vast majority of identity theft that involves opening a new line of credit.

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