Editorial Policy

Credit freeze, credit monitoring: What’s the difference?

Dawn Papandrea

November 6, 2015

As more cases of identity theft and data breaches threaten our security,  many experts and financial advisers encourage us to be more proactive than ever when it comes to protecting our credit information.

The question is, how far should we go?

While there are plenty of ways to be vigilant on your own by checking your credit reports and bank accounts frequently, credit freezes and credit monitoring can offer an additional level of security. However, “the choices become confusing in terms of what is necessary, and what may be more than what you need,” says National Foundation for Credit Counseling spokesman Bruce McClary.

To help clarify the options, here is a look at how credit freezes, credit monitoring and do-it-yourself tactics can help:

Credit freeze

A credit or security freeze is essentially locking down access to your credit reports so that your credit file can’t be pulled by lenders seeking to open a new line of credit in your name. It’s like putting up a wall around your personal information. You can set up a credit freeze by contacting each credit bureau, in writing: Equifax, Experian and TransUnion. All three bureaus have to be contacted as credit issuers don’t all report to the same consumer reporting agencies.

What it costs: Fees range from $5 to $10 per agency to freeze and unfreeze your credit, depending on your state. If you’re an active credit user, the costs will add up. For instance, if it’s $10 to freeze or unfreeze an account in your state, you might pay $30 for the initial request to all three bureaus, another $30 to pause it, and another $30 to reinstate the freeze. That’s $90, just to allow one inquiry. Note that fees are often waived for ID theft victims provided they include a fraud report from the police or other proof.

If you’re somebody who doesn’t utilize credit frequently, and you don’t plan on applying for new accounts or making financial decisions in the foreseeable future, a credit freeze might be the way to go.”
— Bruce McClary,
spokesman for the National Foundation for Credit Counseling

Who can benefit: Credit freezes can be a great tool for older consumers for whom unfreezing accounts would be rare. “If you’re somebody who doesn’t utilize credit frequently, and you don’t plan on applying for new accounts or making financial decisions in the foreseeable future, a credit freeze might be the way to go,” says McClary.

Limitations: Although credit freezes protect you from new fraudulent accounts being opened in your name, you still need to be diligent about monitoring your accounts that are already open, says Dave Henderson, certified financial planner with Client One Securities in Greenwood Village, Colorado. “Credit freezes are not going to stop the kind of fraud that can happen if you lose your card or someone gets your credit information, for example,” he explains.

Keep in mind: It’s not just opening new credit cards or refinancing a mortgage that will require unfreezing an account — applying for a new job or signing up for a cellphone contract might also force you to do so. While unfreezing an account is simple enough (just contact the credit bureaus by phone or online, and use the PIN that was given to you), the process can take a couple of days, thus delaying whatever you’re trying to get done.

Note that a security freeze on your credit file doesn’t mean no one has access to your report. Your credit file can be released to existing creditors or to collection agencies acting on their own. Other creditors can view your file to extend new offers of credit, and government agencies can access your credit to collect child support or investigate Medicaid fraud. Government agencies also can be granted access to your file in response to a court order, a subpoena or a search warrant.

Decision time: If you have concerns that someone may have your personal identifying information with which to open accounts, and you’re OK with the potential costs and hassle of activating a credit freeze, go for it.

Identity theft protection/credit monitoring

These services put a watch on your Social Security number and credit reports to identify triggers that indicate fraud might have taken place. If fraud is suspected, you’ll be notified immediately so you can take steps to avoid further damage to your credit rating. You also can opt for additional protections such as identity theft insurance to recover any stolen funds, and professional assistance to help restore your identify after a data breach.

What it costs: Prices generally start around $10 per month at companies such as LifeLock, but fees can go higher depending on the add-on features you choose. There are lots of vendors out there, including the credit bureaus themselves. For instance, Experian’s Credit Tracker costs $19.95 per month.

Who can benefit: If you can afford the added protection, these services can be appealing. “Especially if you’ve already been an ID theft victim and don’t want to go through it again, you might want to go the extra mile for that peace of mind,” says McClary.

Credit monitoring services are growing in popularity, and they do have their place, but they can give a false sense of security.”
— Dave Henderson,
certified financial planner
with Client One Securities

Limitations: “Credit monitoring services are growing in popularity, and they do have their place, but they can give a false sense of security,” says Henderson. In other words, these services cannot prevent identity theft and fraud, but alert you to it after the fact.

Keep in mind: With so many financial institutions marketing such services, don’t feel pressured. “If your bank or credit issuer is offering this, keep in mind, it is a discretionary add-on service,” says McClary. “As a consumer, you have the right to choose if you want to monitor your own credit or not. You’re not required.”

Decision time: If you’re lax when it comes to monitoring your credit reports and accounts, or you’ve been burned before by identity theft, this layer of protection might be worth every penny. However, don’t mistake it for a free pass from paying attention to your finances. If you’ve been offered the service free-of-charge due to a data breach for a limited time period, go ahead and try it out, but don’t forget to cancel the service if you’re not interested in renewing once the free period has expired.

Do-it-yourself protection

Whether or not you decide to pursue credit monitoring or request a credit freeze, you’re not off the hook when it comes to fortifying your financial information. Here are six easy and free credit protection steps you can take now:

1. Access your free credit reports from each of the three credit bureaus through annualcreditreport.com once per year. McClary recommends pulling one report every three months so you’re checking your credit reports often.

2. Set alerts with your creditors and banks so any time a charge or a transaction is made on your account you’re notified via email or text. “If something looks odd, you can jump on it and shut down any damage,” says McClary.

3. Change your passwords. “That is a key area in which people are really lax,” says Henderson. Don’t have just one password for all of your accounts. Use complex letter/number/symbol combinations; and change them every few months.

4. Protect your devices. Research by Consumer Reports found that only 36 percent of mobile users have screen locks enabled. “Every day, phones are lost or stolen. If you do not have a password, people have access to your email account, bank account and any passwords saved on there,” says Henderson.

5. Don’t use free public Wi-Fi. “You might just want to log on real quick to check your bank account, but don’t. You never know who’s on the other side,” says Henderson.

6. Monitor your mail. Old-fashioned mail identity theft still happens, so shred unwanted credit offers and put a hold on mail delivery when you’re away. You can also call 888-5OPTOUT (888-567-8688) or go online to stop unsolicited credit offers from being sent.

No matter how hard you try, there is no foolproof way to guarantee your financial and credit information will never be stolen and used. Credit freezes and credit monitoring can help, but these services cost money. What’s important is that you put some effort into staying one step ahead of the bad guys and minimize any potential damage that may occur. Just how far you want to go is up to you.

Tags: , , , , , , ,