Given the choice between installing a burglar alarm or an impenetrable deadbolt, most of us would choose the deadbolt. A burglar alarm might help the police catch the crooks while they're rifling through your drawers, but the deadbolt would prevent them from getting into your bedroom in the first place.
For people who worry about identity theft, a credit freeze is a lot like the impenetrable deadbolt. Once a freeze has been placed on your credit reports, credit card issuers, lenders and others can't review the summary of loans and payments that makes up your credit history. Without that information, lenders won't issue credit. And that means criminals can't set up fraudulent accounts in your name.
If you like the idea of putting a padlock on your credit files, there's good news. By the end of this year, all three credit bureaus — TransUnion, Experian and Equifax — will let consumers freeze their credit reports. TransUnion will make its credit freeze available Monday. Last week, Experian said its service will take effect Nov. 1. Equifax also plans to make the service available in early November but hasn't announced details.
These services will expand a patchwork of state credit-freeze laws. Thirty-nine states and the District of Columbia have laws allowing consumers to freeze their credit. But five of those states limit the freeze to consumers who have been identity-theft victims. Consumers who live in the 11 states (see box) with no credit-freeze laws will benefit most from the move by the credit bureaus to expand the service, says Steven Katz, spokesman for TransUnion.
So far, only a small percentage of consumers have taken advantage of credit-freeze laws, officials with the credit bureaus say. But that might reflect confusion about who is eligible for a credit freeze and how it works, says Michael McCauley of Consumers Union. "Once it is available nationwide, more and more people are going to take advantage of it."
In a statement announcing the expansion of its credit freeze, Experian said a fraud alert is still a better option for many consumers who fear they've been victimized by identity theft. A fraud alert requires creditors to contact you before issuing credit in your name. A fraud alert is free, and you don't have to prove you've been a victim to put a 90-day alert in your credit file. (For a longer alert, a police report is required.)
Consumer advocates contend, though, that fraud alerts do little to protect consumers. Because it's free, many consumers put fraud alerts on
their files, even if they haven't been victimized, says John Ulzheimer, president of educational services for Credit.com, a consumer website. As a result, he says, lenders don't always take them seriously.
Maxine Sweet, vice president of public education at Experian, says lenders are legally required to follow up on fraud alerts. At the same time, she acknowledges that fraud alerts have been overused by people who aren't identity-theft victims.
A credit freeze provides a much greater level of protection, Ulzheimer says. But just because you can freeze your credit reports doesn't mean you should. Before you lock up your credit history, consider:
•The cost. TransUnion and Experian won't charge identity-theft victims to put a credit freeze on their files. Consumers who haven't been victimized will have to pay a fee of $10 to each of the credit bureaus to freeze their reports, unless they live in a state that mandates a lower fee. Equifax hasn't provided details yet. But if it follows the lead of the other two credit bureaus, which is likely, freezing all three of your credit reports will cost you $30.
The credit bureaus will also charge a fee to temporarily suspend the freeze. TransUnion and Experian will charge $10 for this service, and Equifax will probably do the same. Unless your state mandates a lower fee, you'll have to pay $30 to temporarily suspend the freeze each time you apply for a mortgage, car loan or other type of credit.
Consumers Union has called on the credit bureaus to lower to $5 the fee for imposing and temporarily suspending a freeze. But for now, at least, a credit freeze is probably most appropriate for consumers who don't expect to apply for credit any time soon.
•The hassle. Many consumers are unaware of how often their credit histories are reviewed. Even if you don't plan to borrow money, you might need to suspend a credit freeze to get an insurance policy, utility service, an apartment, or even a job. If you lose your cellphone, your provider probably won't give you a new one until it verifies your credit, Sweet says.
Consumers who need to provide quick access to their credit histories can suspend a credit freeze by e-mail or phone. Still, Ulzheimer says, a credit freeze is "going to require a little planning before a consumer applies for something."
Sandra Block covers personal finance for USA TODAY. Her Your Money column appears Tuesdays. Click here for an index of Your Money columns. E-mail her at: email@example.com .