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Fraud Alert vs. Freezing Your Credit Report

01/14/2009

If you have been a victim of identity theft, you may have seen conflicting information about how to handle the situation.

Most sites recommend placing a fraud alert on your credit report to prevent the identity thieves from opening up new accounts in your name. This is good advice, but it’s not the best advice.

What is a fraud alert?

Setting up a fraud alert is like placing a red flag on your credit report. It means that any time you (or a potential identity thief) attempts to take out a loan, the lenders are supposed to go back and re-verify all of the personal information. In other words, they are supposed to take several extra steps to ensure that you are the one applying for the loan, and not just someone else using your identity.

That sounds like a good thing right? Where’s the problem?

The problem with placing a fraud alert on your credit reports is simple: Too many loans are given electronically now. In the days where you actually had to sit down with a lender in order to get a loan, a person would have seen the alert and (hopefully) checked things over to make sure that the person applying for the loan was legitimate.

With so many things being automated today, a fraud alert means next to nothing. There is no person there reviewing your credit reports, and not everyone’s system is set up to recognize fraud alerts. An identity thief can be approved for a bank account, a loan or a credit card in less than 60 seconds using your identity – fraud alert or not.

So, what can you do about it?

The best course of action if you believe your identity has been stolen is to freeze all three of your credit reports, no simply place a fraud alert.

What is freezing your credit reports?

If you choose to freeze your credit reports it means that lenders will be unable to see your credit score. This works in favor of most automated systems because the make decisions based entirely on your credit score. If your credit report is frozen, they cannot access your score. If a potential lender can’t see your credit score, they will not issue a loan.

This is the most effective method of protecting your identity. Most automated systems don’t recognize the red flag from the fraud alert, but they will definitely not approve you if they can’t access your credit score!

How to freeze your credit reports:

You can freeze your credit reports by going online, or by calling each of the three credit bureaus. Make sure you do go through the process with all three bureaus too. Not every lender looks at the same credit report. You do have to freeze your credit reports at all three places if you want to shut down an identity thief.

Start by visiting the links below, and setting up an account with each of the three credit bureaus.

Once you have your account set up, you can view your credit report, and choose to freeze, or unfreeze your credit report. If you have been a victim of identity theft, it is free to freeze your credit reports. Usually all you need is a police report number.

If you’re reading this article because your identity has been stolen, and you do not yet have a police report number, you can visit our article on “What To Do If Your Purse Or Wallet is Stolen” for a complete list of steps you should follow to protect your identity.

If you’re identity has not been stolen (or you aren’t sure) and you want to freeze your credit reports just to be on the safe side it costs around $10 per bureau.

Unfreezing your credit reports:

You won’t want to leave your credit reports frozen forever – chances are you will need a loan yourself at some point. If lenders can’t pull your credit score, they won’t issue a loan to you either. So unfreezing is pretty much inevitable at some point.

Today most of the credit bureaus have the freezing / unfreezing process down to a single click of the mouse. When you know that you intend to apply for a loan, log back into your credit bureau accounts and unfreeze your credit reports.

Make sure you give the credit bureaus enough time to catch up with you though – Unfreeze your credit reports about a week before you intend to apply for a loan.

A word of caution:

Once your identity has been stolen, that information is out there pretty much forever. You will never be able to know whether or not the thief sold your personal information to someone else.

Once you decide that enough time has passed, and you no longer wish to have your credit reports frozen, I wholeheartedly recommend picking up a credit monitoring service.

For about $15 a month you can view all three of your credit reports any time that you want to. If you check them regularly you will immediately be able to see any new accounts that have been opened in your name. If you weren’t the one that opened them, you know your identity thief is back.

Also, right now Equifax has a program called ID Patrol that offers identity theft insurance as a part of the credit monitoring package. They also set you up with an advisor that will walk you through identity theft recovery step by step if it happens to you. (Those things are included in the $15/month price for monitoring all three of your credit reports.)

These type of services are not for everyone – but if you have had your identity stolen in the past, or you are afraid that it might have been stolen, then it’s a very good investment because it protects you from further damage to your identity or your credit scores.

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