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.