Credit Freezes vs. Alerts: My Evolving View

“When my information changes, I alter my conclusions. What do you do, sir?”
— Paul Samuelson (influential 20th-century economist and Nobel Prize winner)

Early in my financial planning career, a few of my clients had negative experiences that impacted my recommendations for years. I still remember the frustration and embarrassment “Nancy” conveyed as she was declined financing for her shiny red Lexus because she had frozen her credit several years before. Back then, the process of unfreezing credit was more complicated and time-consuming. Even though Nancy drove that car off the lot a week later, that and a few similar experiences led me to discourage clients (and my own family) from using a credit freeze and using credit alerts instead. (I describe the terminology below.)

The landscape of cyber threats and identity theft has shifted dramatically over the years. The recent National Public Data breach was particularly eye-opening for me, exposing the vulnerabilities that affect millions of us - whether we like it or not. On top of that, I saw how ineffective a credit alert can be when my wife and I applied for a credit card to make a big appliance purchase. Our card was approved in 15 seconds, with no questions asked or notifications provided, even though we have active credit alerts with all three credit reporting agencies. That wake-up call brought me face-to-face with the reality I had been avoiding: my biases were not serving clients well.

The truth is, credit freezes today are different from what they used to be. The logistical headaches from two decades ago have largely been smoothed out. Freezing and unfreezing your credit is now a quick and painless process. For most people, credit freezes are the best choice for guarding against identity theft. Unlike alerts, which might notify you when someone attempts to access your credit, a freeze effectively stops anyone from opening new accounts without your explicit permission.

Ways to Protect Your Credit

You might know the three main tools available to protect your credit: credit alerts, credit freezes, and credit locks. Here's a quick primer on each:

• Credit Alert: A credit alert is a notice added to your credit file that recommends lenders take additional steps to verify your identity before extending credit. Alerts are useful but more reactive - they only help after someone has already tried to access your credit. They can be a good option if you're frequently applying for credit.
  
  
• Credit Freeze: A credit freeze restricts access to your credit report, preventing new accounts from being opened in your name without your consent. It is free, regulated, and provides strong legal protections. You can freeze and unfreeze your credit as needed, making it a highly effective tool against identity theft.
  
  
• Credit Lock: A credit lock is similar to a credit freeze but is typically a paid service offered by credit bureaus. It is marketed as being more convenient, but it comes with fewer legal protections compared to a freeze. Given that credit freezes are free and legally robust, I see no reason to get a credit lock.

How to Freeze Your Credit

Freezing your credit is simpler now than it has ever been. Here are the steps to take:

1. Contact the Credit Bureaus: You need to request a freeze with each of the three major credit bureaus: Equifax, Experian, and TransUnion. Each bureau allows you to place a freeze online, by phone, or by mail.
   
   Equifax: Click here to visit their website or call 800-685-1111.
   Experian: Click here to go to their website or call 888-397-3742.
   TransUnion: Click here to access their website or call 888-909-8872.
   
   
2. Verify Your Identity: You will need to provide personal information such as your Social Security number, date of birth, and address to verify your identity. The process may also involve answering security questions.
   
   
3. Receive a PIN or Password: Once your request is processed, you will receive a unique PIN or password. This is important - keep it in a safe place as you will need it to lift or temporarily unfreeze your credit.
   
   
4. Freezing and Unfreezing: Freezing your credit is free, and you can unfreeze it whenever you need to apply for new credit. Unfreezing can typically be done online or over the phone and takes just a few minutes.

Situations Where a Credit Freeze May Be an Issue

There are several situations unrelated to banking and credit cards where unfreezing your credit may be required: setting up utilities, opening bank accounts, renting an apartment, applying for insurance, employment background checks, and identity verification for online services. Just be aware that an extra step may be required in these situations.

When an Alert Might Make More Sense

Credit freezes aren’t perfect for everyone. There are still scenarios where a credit alert makes sense - if you're frequently opening accounts or securing credit cards, you might want to wait to freeze your credit.

My Current Recommendation

Times change, and so do best practices. I’ve moved from being wary of credit freezes to recommending them for most clients. Improved technology and a scarier cyber environment make a strong case for this approach. A credit freeze is no longer an extreme measure - it’s just a smart one.