How credit freezes and fraud alerts affect credit applications
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According to its most recent data, the U.S. Federal Trade Commission received over 2.1 million reports of fraud and 1.4 million reports of identity theft in 2020.
Then there was the major breach targeting frequent flyer information at nearly a dozen airlines earlier this year. Those numbers still pale in comparison to the 143 million or so Americans whose identifying information was stolen in the 2017 Equifax data breach.
Although it’s nearly impossible to safeguard your personal information completely these days, credit freezes and fraud alerts can provide you with extra layers of protection. However, they will not eliminate the threat completely, and invoking either will require additional action on your part if or when you decide to apply for a new line of credit, whether that’s a credit card or something like a home mortgage or auto loan.
With all that in mind, you might be wondering: Is all that inconvenience worth the extra effort? To help you answer that question, here are the ways credit freezes and fraud alerts affect applications for credit.
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A brief history of fraud alerts and credit freezes
The Fair and Accurate Credit Transactions Act of 2003 – otherwise known as FACTA — is a federal law that, among other enactments, allows consumers to access their credit reports once every 12 months for free (several credit cards now allow you to see your score, at least, for free whenever you like).
FACTA also requires the credit reporting agencies to place a fraud alert on the credit files of consumers who notify one of the agencies about potential or actual identity theft.
In 2002, California became the first state to pass a law giving consumers the authority to ask credit reporting bureaus to place a credit freeze, or a lockdown, on their personal financial data, meaning that it cannot be shared with potential lenders or creditors without the person’s permission and verification of their identity.
Related reading: How to check your credit score for free
How fraud alerts and credit freezes work
Consumers now have the ability to initiate a free fraud alert or credit freeze with all three credit bureaus — Equifax, Experian and TransUnion. 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. In general, you only have to contact one of the agencies and it will notify the others.
Placing a fraud alert on your credit report means telling one of the credit bureaus that you suspect you have already been or might become a victim of identity theft. The credit reporting agency is required to notify the other two reporting bureaus about the fraud alert. So, registering a fraud alert with a single credit bureau places a fraud alert on all three of your credit reports.
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 person who is applying for credit.
There are three types of fraud alerts that you can request:
- Temporary 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 will apply for one year. (You can renew the alert for free.)
- Extended fraud alert: This type of alert is available to those who have already had their identity stolen and have filed a report with the FTC via IdentityTheft.gov, or made a police report. It remains on your credit reports for seven years. This also allows you to request a free copy of your credit report from each of the three main credit bureaus twice within one year from when you place the alert — effectively letting you review your credit report six times to make sure no further instances of fraud occur.
- Active-duty military alert: If you’re serving in the military and are on active duty, 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. What’s more, filing this type of fraud alert means the credit bureaus will take you off their marketing lists for unsolicited credit and insurance offers for two years, unless requested otherwise.
To file a fraud alert, you need contact to just one of the three major reporting agencies:
- Equifax: Call 888-836-6351 or go online.
- Experian: Call 888-397-3742 or go online.
- TransUnion: Call 800-680-7289 or go online.
A credit freeze restricts access to your credit report. While your credit freeze is in effect, you will not be able to open a new credit account unless you temporarily lift the freeze. That will also make it harder for a fraudster to attempt to open new lines of credit in your name.
Even if a freeze is in place, your current creditors and debt collectors as well as government agencies will be able to access your credit report, and you can still do things such as purchase an insurance policy, rent a new apartment or apply for a job without having to lift or remove the freeze.
A credit freeze will remain active until you lift it — either temporarily or permanently (sometimes called a “credit thaw”).
Unlike fraud alerts, where you only need to contact one of the three major credit bureaus, a credit freeze requires you to contact each of the credit bureaus individually:
- Equifax: Call 800-685-1111 or go online.
- Experian: Call 888-397-3742 or go online.
- TransUnion: Call 888-909-8872 or go online.
Be prepared to provide identifying information including your name, address, birth date and Social Security number. In some cases, you might need a photo ID or a piece of mail addressed to you at your current address.
You must lift a credit freeze before you apply for new credit
Before you apply for new credit, you must lift the credit freeze first, or “thaw” your credit 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 and, 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 will likely need to lift your freeze with all three of them in advance. At the same time, you can also choose between a temporary lift or a permanent lift.
If you choose a temporary lift, you can decide both the length of time as well as whether you want to suspend the freeze for a certain range of dates. After those dates pass, the freeze then goes back into effect. This is a convenient way to lift your credit freeze when you need to and then have it automatically reset without you having to remember to do so.
If the freeze was put in place to protect you from identity theft and credit fraud, however, you should 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 a few years ago. 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 will take additional steps to verify that your application is legitimate, so you can expect a delay in the review process.
In many cases, you might not even notice that delay. However, you may not be granted instant approval because of the need to verify your identity. A card issuer or lender might call you, for example, and you may have to answer a few questions to confirm your identity. Just be sure you’re available and have the information on hand.
A friend of mine with a fraud alert on his credit report applied for a credit card recently. 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 smoother than that. Even when there are hiccups with the system like the one my friend experienced, having your identity stolen and attempting to clean up your credit report is a much bigger headache.
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.
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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