When to Monitor, Freeze, or Put an Alert on Your Credit
Get the scoop about what to do when you find out that your personal data has been compromised.
Scott B. said, “After being notified by a company that my personal information was stolen from them, I put a freeze on my credit so no new accounts could be opened in my name. But how will that affect my credit score?”
I’ll tell you what to do when you find out that your personal data has been compromised. We’ll cover the differences between a security fraud alert and a credit freeze, how they affect your credit, and the pros and cons of using a credit monitoring service.
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What Is Identity Fraud?
Did you know that someone becomes a fraud victim in the U.S. every 2 seconds! A criminal only needs a few data points, such as your name, Social Security number, or credit card number, to steal from you.
Here some of the most common types of identity fraud that occurred in 2014:
- Filing a bogus government document in your name before you do, in order to get a tax refund or benefit. This rip-off makes up 40% of identity crimes. You can learn more in The Tax Refund Scam, an exposé of south Florida criminals by the news show 60 Minutes.
- Using your existing credit card to make purchases or to open up a new account in your name (17%).
- Using your information to open utility accounts, such as cable television, internet, electricity, or phone service and then never pay the bills (13%).
- Bank fraud, which includes stealing from your checking, savings, or other deposit accounts (4%).
- Using your information to get a new loan, such as a mortgage, personal loan, or car loan (4%).
What Is a Security Fraud Alert on Your Credit Report?
So what should you do if you’re like Scott and find out that your personal information has been stolen, either physically or as part of a large corporate breach?
In some cases, the company that experienced the breach will give you a complimentary membership to a credit monitoring service. I’ll tell you more about those in a moment.
The first step you can take when you think or know your personal information has been leaked is to set up a security fraud alert on your credit reports. This is a red flag that notifies creditors and merchants to take special precautions to make sure they’re giving credit to the right person.
There are two types of fraud alerts:
- Initial fraud alert—gives you protection for 90 days if you believe that your identity could be in jeopardy. This makes it more difficult for a thief to open a new credit account in your name. You can renew a fraud alert every 90 days for as long as you like.
- Extended fraud alert—gives you protection for up to 7 years if you’ve been the victim of identity theft. You must have documentation to prove it, such as a report filed with a federal, state, or local law enforcement agency.
Adding either type of fraud alert to your credit file is free and doesn’t hurt your credit scores in any way. However, if you need credit, having a fraud alert can slow down the application process.
However, if your personal information has been breached or you’ve been the victim of identity theft, having this delay is well worth the inconvenience.
When you place a fraud alert with any one of the three major credit bureaus (Experian, Equifax, and TransUnion), they must notify the other 2 on your behalf so alerts can be placed on those files as well.
When fraud alerts are placed, the credit bureaus remove your name from their pre-screened offers lists. That means you’ll stop receiving pre-approved offers from lenders, credit cards, and insurance companies while a fraud alert is active.
See also: Best Tips to Improve Your Credit Score
You can place a security freeze on your credit files and drop out of the credit marketplace altogether.
What Is a Security Freeze on Your Credit Report?
But let’s say you’re like Scott and want to take a more dramatic step to protect your credit. You can place a security freeze on your credit files and drop out of the credit marketplace altogether.
A credit freeze prevents a credit bureau from releasing your information to anyone without your consent, with some exceptions. Your existing creditors and any credit monitoring services you choose can still access your reports, even if they’re frozen.
Also, unlike with a fraud alert, your information may still be used for prescreened credit and insurance offers even if you have a freeze. These offers never hurt your credit scores, but if you want to reduce or eliminate them, you can opt out every five years or permanently by visiting optoutprescreen.com.
Because a credit freeze is much more serious than a fraud alert, you must place them separately with each of the three credit bureaus. Unlike a fraud alert, it’s not automatically shared to all the bureaus.
Freezing your credit doesn’t affect your existing credit accounts and has no impact on your credit scores. It’s free if you can verify that you’ve been the victim of identity theft—but if not, the one-time cost ranges from $5 to $20, depending on the state where you live.
Once it’s in place, you won’t be able to get any type of product or service that requires a legitimate review of your credit, without unfreezing it ahead of time. That includes a loan, insurance, rental housing, professional licenses, certain government services, a mobile phone, utilities, retail credit at the point of sale, or employment with companies that require a credit check.
To unfreeze your credit permanently or temporarily, you typically must pay another fee to each credit bureau. You’ll also have to give them a personal identification number; verify your identity; and a provide statement explaining why you authorize the release of your credit report, for how long, and to whom.
Obviously, this slows down any financial application or routine verifications you may need. So be sure to plan ahead and lift a credit freeze several days before you need your information released.
See also: The Truth About Credit and Insurance Rates
What Is a Credit Monitoring Service?
You may be wondering if you also need a credit monitoring service in addition to a fraud alert or credit freeze when your personal information has been compromised.
As I mentioned, it’s common for a breached company to offer a free monitoring service to help you—and to smooth over any negative public attention they may have received.
Monitoring gives you an alert when something on your credit report changes, such as a new inquiry, a new account, a late payment is posted, or an account goes into collections. Services generally also scan the Internet for your Social Security number and credit and debit card numbers to see if there’s a match that may indicate fraud.
A monitoring service may also look for address changes reported by the U.S. Postal Service or creditors, which would indicate that a thief has hijacked your mail. Plus, they may offer assistance or insurance if you do become the victim of identity theft.
These are great features, so I’d definitely take the service if a company offers you a credit monitoring membership for free.
See also: 6 Risky Situations When You Should Avoid Using a Debit Card
A credit freeze can prevent a thief from opening up a brand new credit account in your name–but it can’t prevent someone from using your identity for something unrelated to credit.
What Credit Protections Don’t Do
But what preventative measures should you take if your data hasn’t been compromised? First, it’s important to understand what credit protections like monitoring, fraud alerts, and credit freezes can and can’t do.
As I mentioned, a credit freeze can prevent a thief from opening up a brand new credit account in your name—but it can’t prevent someone from using your identity for something unrelated to credit.
For instance, it won’t keep a determined criminal from filing a bogus tax return, getting a driver’s license, or making a false medical insurance claim in your name.
Those transactions have nothing to do with your credit report. You wouldn’t know about them unless you received a notice from the IRS or a medical bill for services you didn’t request.
Regardless of what protections you have in place, a thief could steal your physical credit or debit card or just your card number and make unauthorized purchases. Neither monitoring, alerts, or freezing would tell you if this occurred because individual purchases don’t impact your credit report.
It’s up to you to check your credit card and bank statements to watch for fraudulent activity. Fortunately, your liability for misuse on a credit card is very small. However, damage from debit card fraud could be huge, depending on when you report it.
If someone takes over an existing credit account by changing your address, a monitoring service might pick this up after it’s happened or once the thief misses a payment.
Knowing about a breach doesn’t prevent fraud, but may make you aware of it more quickly. The longer a criminal controls your identity, the greater the damage they can do to your credit history and finances.
If your data hasn’t been compromised, paying for a monitoring service may be overkill, depending on what’s offered, how much attention you pay to your finances, and whether you’ve been a victim of identity theft in the past.
Here’s a list of what most credit monitoring services will not do:
- Watch your credit report at all three credit bureaus (many only watch one).
- Tell you if a new mobile phone, cable television, or Internet account was opened under your name.
- Notify you if your brokerage or retirement accounts have been hacked.
- Know if a thief has made a fraudulent charge on your credit or debit card.
- Tell you if someone used your information to get a driver’s license, passport, or other identification document.
- Know if someone takes government benefits in your name, such as a tax refund, Medicare, Medicaid, or Social Security benefits.
The bottom line is that monitoring services can help you—but they don’t prevent fraud. They act as a line of defense against a small percentage of possible identity crimes that occur every day.
You have to protect your confidential information as much as possible, pay attention to signs of fraud, and act on them as quickly in order to stay as safe as possible.
Just like being a good driver helps reduce the likelihood that you’ll be in a car accident, there’s always the chance that you could get hit. It’s the same with protecting your identity.
If you’re ready for help managing debt, building credit, and reaching big financial goals, check out Laura’s private Facebook Group, Dominate Your Debt! Request an invitation to join this growing community of like-minded people who want to take their financial lives to the next level.
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About the Author
Laura Adams received an MBA from the University of Florida. She’s an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura’s previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.
