When Should You Freeze Your Credit?

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icecubesFreezing your credit – seems a little drastic right? When you hear the term “credit freeze,” you may immediately think about throwing your plastic into a bucket of water, tossing it into the freezer and leaving it there for good so it’s literally frozen (and so is your temptation to spend unnecessarily). While that kind of credit freeze is a great way to keep you from spending too much on your credit card, it might not prevent someone else from using your credit history to make purchases of their own – also known as identity theft.

Identity theft is on the rise in America; at the same time, it’s hard to know when an identity thief strikes. You might not realize that anything is wrong until you try applying for a new account and you get denied or you start getting calls from collections agencies about accounts you don’t recognize. One way to prevent someone from opening an account under your name is with a credit freeze.

A credit security freeze is when you contact the credit bureaus and ask them to prevent new creditors from viewing your credit report and credit score. By preventing business from viewing your credit history, it’s almost impossible for identity thieves to open an account in your name. And you may choose to freeze your credit even if you haven’t been a victim of identity theft yet.

Sounds like a great way to prevent identity theft, right? Well, since there’s no magic “credit freeze” button to make this happen, it costs effort and money.

You have to first contact each of the credit bureaus and, depending on the state you live in, you may have to pay a fee and fill out extra paperwork. You’ll also have to pay a fee when you’re ready to reinstate your credit.

If you’re planning to open a new line of credit or borrow money in the near future (like taking out a mortgage, a car loan, renting a new place to live, or even opening a new cell phone account), a credit freeze can be a real hassle and the fees can really add up. While you can temporarily lift a credit freeze for a certain period of time or for a specific person or company, you’ll still have to pay some fees.

Also, a credit freeze won’t prevent an identity thief from using one of your existing accounts, like an open checking account or credit card. Finally, a credit freeze doesn’t block everyone from accessing your credit profile. Your current creditors and government agencies will continue to have access to your credit history, especially if you owe money like child support or have unpaid bills that are in collections.

Regardless of whether or not you choose to implement a credit freeze, the best way to prevent serious damage from identity theft is to check on your credit history regularly, look for any accounts that you don’t recognize and monitor for any suspicious activity on any existing accounts.