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Consider freezing your credit reports even before your information is stolen
So far this year, more than 100 data breaches have resulted in an estimated 153 million financial records being stolen – hitting big names such as Experian, T-Mobile, Anthem and U.S. government personnel records – with most of the victims being offered free credit monitoring services as a check against ID theft.
But a new report by the Washington-based consumer group U.S. PIRG says credit monitoring isn’t nearly enough. The group is urging all consumers to consider freezing their credit reports as the only way to stop ID thieves from taking out loans, credit cards and other credit accounts in victims’ names.
“Whether your personal information has been stolen or not, your best protection against someone opening new credit accounts in your name is the security freeze,” said Mike Litt, consumer program advocate at U.S. PIRG. “Credit monitoring services may tell you (about a fraudulent account) but only after you’ve been victimized.”
When a freeze is in place, credit bureaus are prevented from releasing a file to potential creditors without the consumer’s permission. Because most businesses won’t open credit accounts without checking a consumer’s credit history, ID thieves are locked out.
There are drawbacks to consider, including fees, which vary by state; some limitations; and the potential for delays when consumers legitimately want to apply for credit. People must lift freezes if they want to apply for mortgages, car loans, credit cards or other type of credit.
A thaw can be activated online or by phone using a personal identification number and choosing the number of days that the thaw applies. It can be a general thaw or apply only to a specific creditor.
There is no fee to permanently lift a freeze, which automatically expires in seven years.
Victims of ID theft who provide a police report can freeze and thaw their files at no charge, while people 65 and older can initiate a freeze for free but must pay $10 for a thaw.
For the broadest protection, experts recommend that consumers freeze their credit reports with all three main credit bureaus – Equifax, Experian and TransUnion – because a freeze request with one doesn’t extend to the others. Experian said it froze 433,558 files through October this year, up from 160,639 in all 2014.
A consumer applying for credit who wants to temporarily lift a freeze should find out which credit bureau the lender is using to assess creditworthiness and request a thaw from that particular bureau.
In most cases, a report can be thawed within 15 minutes. But since the law allows credit bureaus up to three days to lift a freeze, shoppers could be blocked from getting instant store credit – the kind that promises a discount of 10 percent or more for signing up for a credit card at the register.
Freezes also could interfere with other products and services that may require a credit check, such as getting insurance, renting an apartment, hooking up to a utility or opening a cellphone account.
The U.S. PIRG report noted that neither credit monitoring nor a security freeze can detect or prevent unauthorized use of existing credit accounts or other types of fraud or identity theft such as theft of tax refunds or medical services. Many banks and credit card companies have mechanisms in place to detect existing account fraud and remove unauthorized purchases.
The report contended that paid credit monitoring services, which typically cost from around $10 to $20 a month, are not worth the expense because consumers can essentially monitor their own reports free. Federal law requires each of the main credit bureaus to provide consumers with a free credit report once a year.
Litt acknowledged that a credit monitoring service might detect theft faster than consumers could on their own, depending on when consumers happen to check their reports.
For victims of data breaches, an alternative to a credit freeze is to place fraud alerts on credit reports. The alerts are free but must be renewed every 90 days. Victims of identity theft can sign up for extended fraud alerts that last seven years.
A fraud alert lets creditors know that they should take special precautions before extending credit. An alert with one of the three main credit bureaus is automatically extended to the other two.
Alerts are weaker than a freeze because creditors aren’t legally bound to abide by an alert.