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The Difference Between Fraud Alerts and Credit Freezes

June 7, 2018
Credit Card Basics, Credit Cards, Credit Score, Personal Finance
The Difference Between Fraud Alerts and Credit Freezes Story
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When it comes to protecting your financial information from fraud, you have two powerful tools available: fraud alerts and credit freezes. Both make it difficult for someone to open a new credit account in your name.

They’re especially important if your information has already been compromised. Placing an alert or a freeze on your record with the credit bureaus can help prevent fraudulent activity from damaging your credit score.

The main difference between a fraud alert and a credit freeze has to do with lenders’ access to your credit report.

The fraud alert

What it is: A fraud alert is a warning placed on your credit record that tells potential lenders to contact you and verify your identity before extending new credit. If someone tries to open a new credit card or borrow money in your name, a phone call from the lender will tip you off, and you can prevent the new account from being opened.

This can be inconvenient if you’re trying to get approved for a loan or a new credit card, but it’s even more inconvenient for anyone else who tries to use your name to open a new account. Alerts usually last for a year, after which you can renew the request.

How to set it up: Contact one of the three credit reporting bureaus — Experian, Equifax or TransUnion — and ask it to place a fraud alert on your credit file. According to the Federal Trade Commission, the bureau you choose is required to notify the other two, so you don’t have to call all three yourself.

When you need it: If you’ve recently lost your wallet, you’ve used your card at a store that suffered a major data breach or have other reasons to believe your private information has been compromised. Placing a fraud alert may prevent anyone from using your information to open new accounts in your name. However, it won’t stop fraudulent charges on an existing credit card account. Watch your existing accounts closely for suspicious charges.

» MORE: How to dispute fraudulent credit card charges

The credit freeze

What it is: A credit freeze, sometimes called a security freeze, prevents lenders from accessing your credit report at all without authorization. Lenders must see your credit history before approving you for a credit card or loan, so they can’t issue new credit to you — or someone pretending to be you — until you authorize them to access your credit report.

You can allow lenders see your credit report with a PIN if you want to open a new account. This might also be necessary if you’re renting an apartment or applying for insurance, both of which usually require a credit check.

How to set it up: Unlike with a fraud alert, you’ll have to call each of the three credit reporting bureaus yourself.  The freeze will stay in place until you ask to have it lifted.

When you need it: A credit freeze is in order if you suspect that your Social Security number has been stolen. If one of your credit cards was stolen, it’s not too difficult to replace the card and get a new number, but your Social Security number can only be changed under a few circumstances.

You may also choose to place a credit freeze if you’ve already been the victim of identity theft and want to make sure no other nasty surprises are in store.

The credit bureaus often offer credit lock services alongside their credit freeze options. Locks can carry a monthly fee, but offer an easier way to grant access to your files when you want to apply for credit. Like freezes, they work best when you apply a lock at all three credit bureaus.

» MORE: Your guide to cybersecurity and identity theft

The one-two punch

Fraud alerts and credit freezes make it harder for criminals to open new accounts under your name. But it’s even more important to carefully guard your personal financial data so you won’t be vulnerable to fraud.

Virginia C. McGuire is a staff writer at NerdWallet, a personal finance website. Email: Twitter: @vcmcguire.

Updated Oct. 10, 2017