There have been a number of high-profile data breaches this year that have everyone on edge, including some of the largest cyber attacks in history, such as the Change Healthcare and National Public Data breaches, which have led to calls for credit freezes to protect ourselves.
But should you freeze your credit when information about a data breach comes to light, and how exactly does freezing your credit protect you? What does freezing your credit mean in cases like the Change Healthcare and National Public Data breaches?
First, let’s be clear about one thing: Kiplinger recommends freezing your credit. Let’s explain why we recommend it and why this is the year to remember the importance of this protective measure.
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What is a credit freeze and how does it protect me in the event of a data breach?
A credit freeze, also known as a security freeze, prevents creditors from checking your credit report. Why is that important after a data breach?
Now, consider the Change Healthcare breach, in which hackers accessed data such as names, birth dates, phone numbers, addresses, Social Security numbers, banking information, etc. Assume I am a fraudster. With that information, I could theoretically apply for a credit card in your name.
If you don’t have a credit freeze, the bank may run a credit check on that credit card. Assuming your credit is good, you may be approved for the card. Then, I, the fraudster, could use that credit card that I opened in your name to make purchases for myself or commit fraud while pretending to be you. This could damage your credit and cause you and even your family to lose money through fraud.
“While a credit freeze won’t prevent all types of identity theft, it significantly reduces your risk by making it much harder for hackers to exploit your credit information, and hackers are always looking for the easiest thing to get their hands on,” RJ Weiss, CFP and CEO of The Ways to Wealth, told Kiplinger.
It’s scary because it is: scams like the ones above pose a real threat of data breaches if bad actors gain access to your information.
A credit freeze doesn’t stop your credit score from changing. It’s also super easy to lift a credit freeze — and it’s free. (Note that there is a different option to a credit freeze called a “credit lock.” Freezing is free, while locking is a paid option with additional features.)
“When a credit freeze is in place, you still have access to your credit report. A credit freeze doesn’t affect your credit score,” said Margaret Poe, head of consumer credit education at TransUnion, one of the three credit reporting agencies.
Can I keep my credit frozen at all times?
In theory, yes. The only time you’ll need to unfreeze your report is if you’re applying for financing like a credit card or loan.
“Especially with the news from last week and the increased likelihood of data breaches, it’s becoming more prudent for most people to have their credit frozen in default,” Weiss said.
Kiplinger Personal Finance editor Lisa Gerstner calls a credit freeze “one of the most powerful tools consumers can use to prevent identity theft,” and writes about how to put one in place.
“My own report has been frozen for years, but each time I applied for credit it was easy to temporarily lift the freeze for a specified period of time, and the freeze would automatically be reinstated when the period ended,” Gerstner says.
Considering it’s free to put a freeze on your credit and can be easily unfrozen when creditors need access to your report, this is a simple way to protect your finances.
“It takes some time to initially set up a freeze with each credit bureau, but once it’s in place, it gives you peace of mind that criminals are less likely to open credit accounts in your name,” Gerstner says.
To freeze your credit you will need to go through Equifax, Experian and TransUnion. Stay safe.
