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Will a Credit Freeze Prevent Identity Theft?Identity theft has become a hot topic in the news, especially after major retailers like Target and Michael’s were hit by large-scale security breaches. Keeping your personal information safe is more challenging than ever. Identity thieves are using increasingly sophisticated tactics to gain access to your data. Initiating a credit freeze can be an effective way to prevent certain forms of identity theft but there are some potential drawbacks. Here’s a brief rundown of what it means to freeze your credit and things to keep in mind if you’re considering one.

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How to Freeze Your Credit

Each state has different laws that regulate freezes but the process for obtaining one is pretty much the same. You have to send a written request to each of the credit bureaus that you want to freeze your report. Depending on where you live, you may have to pay a fee of up to $10, although some states will waive it if you’ve been the victim of identity theft. Once the freeze is in place, it can’t be removed until you send another written authorization asking for it to be lifted, which may entail paying another fee.

What a Credit Freeze Does

When your credit history is frozen, it prevents businesses or lenders from accessing the information contained in your report. That means if you’re planning to make a major purchase like a car or a home, you’ll have to give the credit bureau express permission to temporarily release your information or else lift the freeze entirely. If you’re worried about someone using your information to open new accounts in your name, a credit freeze will stop them in their tracks.

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What it Won’t Do

One of the biggest misconceptions associated with a credit freeze is that it’s a guaranteed way to insulate yourself against identity theft. While it does prevent new accounts from being opened, it doesn’t necessarily safeguard ones that are already open.

For example, if an identity thief has already gotten their hands on your credit card number or bank account information, they can still use it to wreak financial havoc. Freezing your credit wouldn’t do much good in this situation unless you’re worried that an identity thief might sell your information to someone else.

Is it Worth It?

While the cost involved in freezing your credit is pretty minimal, you may end up dealing with some serious headaches if you find yourself having to unfreeze it. It usually takes a little longer to remove a freeze than it does to put it on, so you may run into problems if a lender needs to check your credit on short notice. It can also be an obstacle if you’re applying for a job and the employer wants to do a credit check as part of the hiring process.

The Bottom Line

A credit freeze can be beneficial if you don’t plan on applying for new credit any time soon and you’re concerned about the risk of identity theft. It’s important to remember, however, that it doesn’t safeguard you against other acts that involve the misuse of your personal information, such as insurance fraud. It also doesn’t prevent your existing creditors from pulling your report without your authorization. Before you put a freeze in place, it’s important to consider whether the benefits outweigh any potential inconvenience.

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Photo Credit: flickr

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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