With identity theft on the rise and news of data breaches popping up almost daily, your credit will likely at some point be the target of fraudsters and identity thieves – assuming they haven’t gotten to it already. This means that you may inevitably face the choice of deciding which tool, a fraud alert or a credit freeze, would best protect your credit. We’ve talked about both credit protection options before, but we’ve never conducted a full-scale comparison between them. Continue reading as we explain what fraud alerts and credit freezes are, as well as when you should use each.
How fraud alerts work
Fraud alerts, sometimes called security alerts, are a type of credit report status that can be issued by the any of three credit bureaus. A fraud alert signals to creditors that your identity might be compromised and that the creditor should take extra precautions to verify your identity before opening new credit accounts under your name or increasing credit limits for any of your existing accounts. A fraud alert filed with any of the three major bureaus is immediately forwarded to the other two bureaus, meaning you don’t have to contact all three major bureaus to initiate the alert — you can just contact one of them. In addition, filing a fraud alert grants you the right to have free copies of your credit reports (outside of your annual free reports). It should be noted that you will not be charged to place a fraud alert.
There are three different types of fraud alerts that can be placed on your credit reports, and each subtly differs from one another:
1.Temporary or initial fraud alert. This is the standard fraud alert that anyone can add to their accounts — even if you didn’t fall victim to identity theft. It remains in effect for 90 days, but can be renewed upon request. This type of alert works best when you suspect that you were potentially a victim identity theft but lack the proof to prove it. They’re also a proactive way of dealing with the consequences of losing your wallet or social security card.
2. Extended fraud alert. If you have been the victim of identity theft and have proof of the theft, you can get a more comprehensive fraud alert known as an extended fraud alert.
These alerts last seven years and credit reporting companies are supposed to take your name off of marketing and pre-screened credit offers lists for five years. On top of that, extended fraud alerts grant you two free credit reports within 12 months of requesting the alert. In order to file an extended alert, you’ll need an identity theft report and a police report indicating that your identity was stolen and/or damage was done to your credit.
3. Active duty fraud alert. Military personnel who are on deployment can activate a special fraud alert called an active duty alert. This alert lasts for one year and can be renewed beyond one year if your deployment period is longer. You’ll also be taken off certain marking and pre-screened offers lists during that time.
How credit freezes work
Like fraud alerts, credit freezes, or security freezes, also change the status of your credit reports and freezing your credit grants you free copies of your credit reports. However, freezes completely halt creditors from opening or expanding any credit lines or accounts. This means that your credit reports cannot be viewed or accessed by any new creditors. This ensures that no one, yourself included, can abuse your credit. Essentially, until your credit is unfrozen or “thawed” it can’t be used to create unauthorized used accounts. Unlike fraud alerts, when you freeze your credit, you usually have to pay a fee, depending on where you live — the fees usually range from $5 to $10. Also unlike a fraud alert, if you want to freeze your credit, you must contact each of the credit bureaus individually. It should be noted that you can also temporarily or permanently lift a freeze if you apply for a credit card or other credit account.
What’s the difference between fraud alerts and credit freezes?
As you can likely tell from the descriptions, fraud alerts are more of a temporary solution, although they can be extended to accommodate credit monitoring over a longer period of time if you fall victim to identity theft or you’re in the military and deployed. On the other hand, freezes are a more permanent solution and only end when you request them to be removed. Given this, credit freezes trade off flexibility for security, while fraud alerts provide a balance of both. It’s important to note, though, that while fraud alerts can be somewhat useful in stopping new credit accounts from being opened in your name, you won’t be alerted if someone other than you is using your credit. Similarly, not every creditor does their due diligence to respect fraud alerts, either because they simply don’t notice when credit reports have active alerts, or because they ignore the status outright.
Because of this, in terms of security, fraud alerts will always be the weaker option. This doesn’t mean that freezes are better – indeed, they can be expensive to create and cancel – but because of their extensiveness, freezes allow you to secure and control your reports better than fraud alerts do. Something to also be aware of is that parents and legal guardians can request a credit freeze for their children to protect their credit until they’re old enough to build their own credit history — placing a fraud alert on your child’s credit isn’t an option.
Which one should I choose?
The credit report status you choose will greatly depend on the situation you find yourself in. If, for example, you suspect identity theft but can’t prove it, you’ll likely only be able to file an initial fraud alert. This is because initial fraud alerts are available to you at any time, while extended fraud alerts will require an identity theft report. Freezes are also available to you at any time, although they usually cost money to start or cancel. In some states, the fees can be waived you if prove you were a victim of identity theft, but this isn’t always the case.
Traditional wisdom has held that fraud alerts are best used when you need to retain your ability to open credit or borrow quickly. Given that freezes restrict anyone’s access to your credit history and can take some time to reverse, they can be a huge inconvenience, especially when you need new goods and services quickly. This advice is starting to change, however, with a growing number of credit experts suggesting that consumers keep their credit frozen by default.
Although this is an extremely secure option, it’s both inconvenient and potentially expensive, with many states allowing each credit bureau to charge fees to freeze and unfreeze credit for consumers who aren’t current identity theft victims. If you can afford to pay these fees and don’t anticipate opening new credit lines very often, then this might not be a terrible option; however, it likely isn’t something that is feasible for everyone. Keep in mind that using credit freezes proactively in this way require you to plan ahead, and if you want to apply for new credit or even utility accounts, you’ll need to thaw your credit days in advance, as it could take up to three business days for your credit to thaw.
Protecting your credit is important in the Digital Age, where it seems like your information can be leaked at any second. While you can’t go wrong with either a credit freeze or a fraud alert, you’ll want to make sure you pick the best option for you.