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Reader Question: Credit Freeze Worthwhile?

This article was written by in Credit. 6 comments.


TV Girl wrote into Consumerism Commentary (and a few other blogs, so I expect to see responses elsewhere) with the following question about credit freezes:

I’ve been listening to Dave Ramsey talk on his radio show about freezing your credit report, but I haven’t heard much (if anything) about this issue in the pf blogosphere. He seems to think it’s the best thing since sliced bread, but I’m wondering what your opinions are. What are the pros and cons? In what circumstances would you do this or not?

A credit freeze will let the credit reporting bureaus know that your personal information should not be shared with any companies that place requests. This will hinder your ability to sign up for a new credit card or take out a mortgage. If you’re a full follower of Dave Ramsey, then that shouldn’t inconvenience you at all. Dave Ramsey preaches avoidance of credit and debt of all forms, buying only what you can afford with cash. Is there any danger to having your credit reporting frozen? I don’t think there is any danger.

Those who use access to credit to their advantage, and hopefully do so responsibly, will be hindered by a credit freeze. If you know you’ll be shopping for a mortgage or taking advantage of 0% APR credit card offers, then a credit freeze is not for you. Your ability to sign up for deals which allow you to pay for today’s expenses with tomorrow’s money (which uses inflation to your favor as long as you avoid fees and interest charges) will be hindered by a credit freeze.

The primary customers, the persons for whom credit freezes are meant to protect, are those who believe they are or might be the victim of identity theft. A credit freeze will disallow anyone from opening credit in your name. So if somehow an individual ends up with your social security number and other personal information, with a credit freeze, the perpetrator will not be able to successfully apply for credit cards, rent an apartment, or finance the purchase of a car in your name. This is by far the biggest benefit.

On the other side of the argument, merchants don’t want consumers to have the option of freezing credit. The reason is simple: the inability to get instant credit means that merchants will sell less of their products. The possibility for a large purchase on impulse is effectively eliminated by credit freezes.

I understand Dave Ramsey’s point of view, but credit freezes are not for everyone, nor are they for every circumstance. I also believe that fears of identity theft are generally overblown. It’s a compelling story, so the media return to anecdotal stories of identity theft often. It’s also a money-making industry for security companies, so they have a vested interest in making the problem appear larger than it is.

It’s important to remember that a credit freeze is not a complete solution for preventing theft. When an existing credit card of yours is stolen, the thief can still make purchases regardless of the status of your credit report.

To see if you are eligible for credit freezes, check the Consumer Union’s Guide to Security Freeze Protection for the laws in your state.

As I do with any email I receive asking me for financial advice, I included a disclaimer. I am not a financial adviser — and while asking bloggers your financial questions may seem like a good idea, it does not replace doing your own research and speaking to unbiased financial experts. I started Consumerism Commentary, and Sasha later joined, not because we believe we have all the answers and the need to share them, but because there are many questions and blogging provides an opportunity for us to learn.

Published or updated November 19, 2007. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 6 comments… read them below or add one }

avatar Mrs. Micah

I think when I’m a bit older and more stable it might make sense (not that I plan to open credit now, but I want the option I guess). Maybe by then it’ll be less expensive, too. :)

I dunno, I reserve the right to change my mind and freeze it at any point. :)

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avatar Dividends4Life

I have heard that insurance companies use your credit rating to help determine your rates; and many companies run credit reports on prospective employees. I assume a credit freeze would allow these to still occur?

Best Wishes,
D4L

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avatar Yana

I would love to freeze my credit reports at all credit bureaus, but will not do it if I have to pay for it. I was once a victim of identity theft in the 90′s, and I do not use credit. I have a negative opinion of the credit bureaus, and consider them tacky marketers who do not work. To correct an identity theft can cost the victim $35,000 or more. Errors on credit reports are not corrected without consumer intervention and expense. This means the credit bureaus are not doing anything but collecting information, and not verifying that information. There is something very freeing about “opting out” of the credit game. Some might consider the downside to be the inability to purchase what one cannot afford, or the deprivation of the privilege of paying interest rather than earning it. I’ve also heard that home loans and car loans are “good” debt. I don’t see it that way. What I do see is that a credit score is something to hold over the consumer’s head, when an unscrupulous business wants to force an invalid payment from said consumer. (Think: cell phone companies/contracts, for starters) Excellent credit feels good, but getting away from it feels even better.

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avatar Luke Landes ♦127,490 (Platinum)

D4L: A credit freeze would mean that a prospective employer would not be able to retrieve your credit report. Same goes for insurance companies. You will have a chance to let requests through most of the time, once the the credit bureau verifies that you did in fact authorize the request. That can take days.

I would suggest not initiating a credit freeze if you are looking for a job or about the shop for insurance.

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avatar Shadox

I have no problem with the concept of a credit freeze – what I do have a problem with is that the credit agencies charge you for getting it.

As far as I am concerned this is like protection money – let’s think about it for a second. You collect personal information about me and charge me not to sell it to the bad guys?! What are you? The mob?

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avatar Mick

Shadox,

The analogy you make to the mob is entirely innaccurate.

The organizations that request and receive your credit information from the credit agencies are not the bad guys…The person pretending to be you is.

When this bad person approaches a lender, the lender is under the assumption that this person is you (given that the criminal has enough info to make them think this). The lender then requests your credit report just as they would if it were actually you.

Paying the fee to freeze your credit is paying a fee to inconvenience the system and account for processing costs which go along with this inconvenience. It is appropriate if you suspect your identity may be at risk.

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