How credit freezes and fraud alerts affect credit applications

Mar 10, 2020

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Identity theft wreaks havoc on about 15 million people a year. Although it’s impossible to safeguard your personal information completely, credit freezes and fraud alerts can provide you with extra layers of protection. However, they will not eliminate the threat totally, and they will require additional action on your part when applying for new credit. So, are they worth the extra effort?

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In This Post

A brief history of fraud alerts and credit freezes

(Photo by i_frontier / Getty Images)
(Photo by i_frontier/Getty Images)

The Fair and Accurate Credit Transaction Act of 2003 – otherwise known as FACTA — is the federal law that allows consumers to access their credit reports once every 12 months for free (visit to claim your free reports.) FACTA also requires the credit reporting agencies to place a fraud alert on consumers’ credit files if they notified an agency about potential or actual identity theft.

California was the first state to pass a law giving consumers the authority to ask credit reporting bureaus to place a credit freeze, or a lock down, on their personal financial data. This law also was enacted in 2003.

Related reading: How to check your credit score for free

How fraud alerts and credit freezes work

You now have the ability to initiate a fraud alert or credit freeze with all three credit bureaus. When protecting your credit and identity, you can request both. This isn’t an either/or situation. And, since 2018, there’s no cost for either service.

Related reading: Credit cards that offer a pause button and when to use it

Fraud alerts

When you place a fraud alert on your credit report, you’re telling one of the credit bureaus that you suspect you might become a victim of identity theft or you’re already a victim. The credit reporting agency has to notify the other two reporting bureaus about the fraud alert. So, a call to a single credit bureau places a fraud alert on all three of your credit reports.

BERLIN, GERMANY - FEBRUARY 02: Symbolic photo on the subject of online shopping. A credit card is held next to the keyboard of a laptop. (Photo by Thomas Trutschel/Photothek via Getty Images)
(Photo by Thomas Trutschel/Photothek via Getty Images)

When lenders request a copy of your credit report from Equifax, Experian or TransUnion, they will see the fraud alert. The alert informs lenders that they need to take extra steps to verify you are indeed the one applying for credit.

There are three types of fraud alerts:

  • Fraud alert: If you suspect you might be the victim of identity theft or your credit information might have been compromised, you can file a fraud alert that’s good for 90 days. (You can renew the alert, but you better make a note to yourself as a reminder.)
  • Extended fraud alert: If you’re already a victim of credit fraud or identity theft, then you can file for this kind of alert. It will stay on your credit reports for seven years.
  • Active-duty military alert: If you’re serving in the military and are deployed, you can protect your credit while you are away. This type of alert is good for a year, and it can be extended for the length of your deployment.

To file a fraud alert, contact one of the three major reporting agencies:

Related reading: How I learned that my credit card number was stolen

Credit freezes

A credit freeze places your credit reports on lock down. When you freeze your credit with a credit bureau, it takes your report out of circulation. New creditors can no longer access your information. Because a credit freeze restricts access to your credit report, it makes it difficult for anyone to open up a new credit account in your name.

When your report is frozen, your information can still be accessed by some. But, access is limited to existing creditors, debt collectors acting on their behalf and government agencies. Of course, you can continue to check your own credit report even if a freeze is in place.

A credit freeze will remain active until you lift it — either temporarily or permanently (sometimes called a “credit thaw”).

To initiate a fraud alert, you only need to identify one of the three major credit bureaus. However, with a credit freeze, you will need to contact each of the credit bureaus:

Why you have to lift a credit freeze before you apply for credit

Initiating a credit freeze will help you avoid fraud and credit theft, but has it's drawbacks. (Photo via Shutterstock)
Initiating a credit freeze will help you avoid fraud and credit theft, but has its drawbacks. (Photo via Shutterstock)

A credit freeze, also known as a security freeze, offers you protection against credit fraud and identity theft. At the same time, it makes it more difficult when you want to apply for legitimate new credit.

Before you apply for new credit, you must lift the credit freeze first (thaw your report). If you don’t lift your credit freeze, the card issuer or lender won’t be able to access your credit information when it processes your application. As a result, you’ll almost certainly be denied.

Because you don’t know which credit reporting agency a card issuer will use when you apply for new credit, you may want to thaw all three of your reports in advance. You can choose between a temporary lift or a permanent lift.

If you choose a temporary lift, you determine the length of time to suspend the freeze. If the freeze was put in place to protect you from identity theft and credit fraud, think long and hard before removing the credit freeze permanently.

Tip: If you applied for a credit card but forgot to lift your credit freeze, thaw your report and then call the reconsideration line. I made this mistake when I applied for a new Chase credit card last year. Chase was able to reprocess my application once I thawed my report and then approved me for a new account with a great sign-up bonus.

What happens if you apply for credit with a fraud alert?

When you apply for a new account after placing a fraud alert on your credit reports, the lender must take steps to verify the application is legitimate. Because lenders and creditors must take additional steps, expect a delay in the approval process.

In many cases, the delay will be unnoticeable. However, you may not be granted instant credit because of the need to verify your identity. If you have a fraud alert on your credit reports, be prepared to do a little extra work when you apply for new credit. When a card issuer or lender calls you, for example, you may have to answer a few questions to verify your identity.

I have a friend who applied for a credit card recently with a fraud alert on his credit report. The issuing bank later tried to call him to verify his identity. He missed their incoming calls and the card issuer wouldn’t allow him to verify his identity when he called them back directly. As a result, his application was denied despite a perfect 850 credit score.

My friend’s situation is the exception and it certainly isn’t an argument against fraud alerts in general. Usually the process is smooth. Even when there are hiccups with the system, as my friend experienced, having your identity stolen is a much bigger headache.

Bottom line

A credit freeze or a fraud alert can help protect you against someone fraudulently opening new credit accounts in your name. Still, you must remain vigilant with your existing credit accounts. For this reason, it’s important to check your three credit reports frequently and review them for errors. If you place a fraud alert, you have the right to request another free credit report from each of the credit reporting agencies.

Related reading: Why you might — or might not — want to invest in a credit-monitoring service

Having credit protections in place requires some extra time if you want to apply for new credit. But keeping your credit safe from bad guys is worth the effort — especially if you think your personal information has ever been compromised.

Featured photo by Andrew Bret Wallis via Getty Images


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