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Understanding How Credit Freeze Works and Its Pros and Cons

A credit freeze is a method of restricting other people from accessing your credit report. In case someone wants to open a new line of credit assuming your identity, the application will be turned down because the potential creditor will not be able to access your credit report to evaluate your credit risk. The advantage is that while you have control over your financial information, a credit freeze does not affect your credit score and is also free of charge. While a credit freeze will help to prevent new lines of credit being opened, it has no impact on your existing financial accounts, including credit cards.

Process of Placing the Credit Freeze

According to https://creditcards.usnews.com, you need to contact all the three credit bureaus, TransUnion, Equifax, and Experian, and provide information like name, Social Security number, address, as well as date of birth for verifying your identity. The agencies will provide or allow you to select a PIN that you can use to add or lift a credit freeze when you like or even remove it permanently. Remember the credit freeze acts on only new inquiries by potential lenders not the existing lines of credit. The freeze also may not apply to government agencies armed with a search warrant, subpoena, or court order. A transunion unfreeze can take a maximum of one hour for telephonic or online requests while written requests can take up to three business days.

Benefits of a Credit Freeze

The biggest benefit of a credit freeze is that no new lines of credit that require a credit check can be opened in your name since potential lenders cannot access your credit report required for them to assess your credit risk. This acts as a strong deterrent for identity theft by opening new accounts, however misuse of existing credit lines is still possible. The process of freezing your credit does not have any impact on your credit score, which is, however, still affected by your credit utilization ratio and timely payment of your dues. Another strong point in favor of credit freeze is that placing it, lifting it, or removing it is completely free of charge.

Cons of Credit Freeze

The process of requesting your credit to be frozen, even if simple, takes some amount of effort. You will be required to contact all the three credit reporting agencies separately and provide all the information required by them to activate the credit freeze. It may take some time for them to process your request for the first time and issue you a PIN, after which subsequent actions will become easier and faster. You will also need to remember all the three PINs issued to you because if you forget them, you will need to follow a separate procedure to obtain a new one. Every time you want to open a new line of credit, you will need to remember to lift the credit freeze to allow lenders to access your credit report.

Conclusion 

A credit freeze is very useful for protecting yourself from potential identity theft, though your existing lines of credit remain unprotected from mischief.

Ana Hoffman
Anna Hoffman is a part-time blogger who blog about Business Technology, Digital Marketing, Real Estate, Digital Currencies, and Educational topics.

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