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You Might Need a Credit Freeze

You Might Need a Credit Freeze
January 11, 2016
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Credit security freezes are often held up as the gold standard to protect consumers from identity theft. Much more restrictive than traditional fraud alerts, credit freezes prevent anyone from opening up new accounts using a consumer’s Social Security number — including the rightful owner of the number. To get credit, a consumer’s credit report must be “thawed,” generally requiring a phone call and PIN code, barriers most identity thieves simply don’t even try to scale.

Freezes are a bit cumbersome to employ, however, and they sometimes require a fee. (You can check out our full list of states where you can freeze your credit for free here.) Perhaps because of those obstacles, a surprisingly small number of consumers have taken advantage of the freeze option since it became widely available in 2007, despite widespread concerns about ID theft. From 2011 to 2014, freeze users ranged from 130,000 to 160,000 annually, according to data obtained by Credit.com from credit bureau Experian. During that same period, about 600,000 consumers requested initial fraud alerts be placed on their credit files, Experian said.

But that might have changed in 2015. In February 2015 alone — the same month as the high-profile data leak at health insurer Anthem — nearly 160,000 consumers asked Experian for a credit freeze. Through October, the yearly total was 434,000, meaning about triple the consumers used freezes in 2015 than 2014.

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Credit bureau TransUnion offered a similar picture. The firm said it received 477,000 freeze requests last year, about double the number of requests in 2014. Credit bureau Equifax declined to provide specific data, but said credit freeze filings were up 30% in 2015.

The data provided by Experian is consistent with an estimate offered in a 2014 paper published by the Federal Reserve Bank of Philadelphia that analyzed Equifax data. At Credit.com’s request, paper author Julia Cheney estimated that of 168,840 freezes were filed by consumers during 2012, the year the data was examined.

Other high-profile hacks seem to have had some impact on consumers and freeze requests. Experian’s data show freeze requests jumped more than 100% between November 2013 and January 2014, to 21,189 — the Target hack was announced during that span. It’s also worth noting that freeze alerts dropped the following month and didn’t surpass 15,000 again until February 2015 and the Anthem leak.

Ed Mierzwinski, consumer program director of advocacy group the Public Interest Research Group, has been trying to call more attention to the credit freeze option for years. His group published a report, “Why You Should Get Security Freezes Before Your Information Is Stolen,” in October.

“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 — also known as the credit freeze — not the often-offered, under-achieving credit monitoring,” Mierzwinski wrote in the report.

The Rise of the Credit Freeze

Freezes are a creation of state laws. As identity theft became national concern at around the turn of the century, state legislatures began passing laws requiring that data collectors and credit bureaus do more to protect consumers. California passed the first credit freeze law in 2003, followed by several other states. In 2007, the bureaus said they would make them available to all consumers regardless of state residence.

But even as roughly 10 million consumers each year were hit with identity theft, freeze usage remained low. The Fed report estimated that for every freeze filed, between 8 and 17 fraud alerts were placed during the time span studied. Put another way, consumers favored alerts over freezes by nearly 20 to 1.

Freezes, like alerts, are no panacea. They generally won’t stop an imposter from getting a driver’s license in a victim’s name or filing a fraudulent tax return, for example. And they don’t stop simple credit card fraud. Clever hackers can also defeat freezes by collecting enough information to trick credit bureaus into thawing consumer reports. But generally, freezes are very effective at stopping the type of ID theft that causes the most trouble for consumers — new account fraud, in which a criminal opens up a new credit card or takes out a loan using the victim’s information. This type of fraud can do major credit damage, hurting a consumer’s scores for years depending on the severity of the theft.

“Although somewhat more cumbersome to implement — and thaw — a credit freeze provides greater identity protection than a fraud alert, but cannot be considered the silver bullet,” said Adam Levin, co-founder of Credit.com and author of the new book Swiped: How to Protect Yourself in a World Full of Scammers, Phishers, and Identity Thieves. “It cannot stop a thief from taking over an existing account, nor does it protect against medical, tax-related, or criminal identity theft. It is, however, an important arrow to have in your quiver.”

The Cost of a Credit Freeze

Freezes often aren’t free, however. Fees vary by state. ID theft victims generally can place freezes for free. Others must pay $5 to $10 per credit bureau for an initial freeze, then pay again each time a thaw is needed. At times, getting a thaw can be a challenge — predictably, consumers lose track of the PIN codes required to initiate one, for example — particularly when consumers are trying to close a loan under pressure.

But Mierzwinski is optimistic that consumers seem to be getting the idea that a credit freeze is a good option; and, in his opinion, a better option that paid credit monitoring services.

“(It’s) encouraging that when a breach is horrific that the freeze message gets out, but the paid credit monitoring message is unfortunately still louder,” Mierzwinski says. “The better-protective security freeze is only recently attracting press attention. We hope to change that going forward, and our recent report was part of that.”

If you don’t want to (or feel you don’t need to) put a freeze on your credit report, you should still closely monitor your credit for signs your identity has been stolen. (You can do so by pulling your credit reports for free each year at AnnualCreditReport.com and viewing your credit scores for free each month on Credit.com.) Sudden drops in scores, mysterious addresses or loan accounts you never opened are indicators that fraud may be occurring.

This article originally appeared on Credit.com.

 

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