Putting a freeze on a child’s credit can be a hassle — but if you can do it, you probably should.
Identity thieves target children because the crimes can go undiscovered for years. Often, bogus credit histories don’t come to light until the victims apply for their first credit card, apartment or job and get rejected. Then, they can face huge battles to clear their names after years of credit abuse.
The sheer volume and severity of recent database breaches, including last year’s breathtakingly huge compromise at Equifax credit bureau, make freezing children’s credit worth the effort, says identity theft expert Eva Velasquez, executive officer of the nonprofit Identity Theft Resource Center.
Credit freezes are free starting Sept. 21, thanks to Congress’ approval of the Dodd-Frank reform law. The law also requires credit bureaus to create and freeze files for children under 16 at their parents’ request, something that previously wasn’t available in every state.
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How credit freezes work
Credit freezes allow you to restrict access to your credit reports, preventing identity thieves from opening new, fraudulent accounts in your name. Credit freezes have been available to U.S. adults since 2007.
Children under 18, however, typically aren’t supposed to have credit reports. If they do, someone has probably stolen their identity. All three major credit bureaus allow parents to freeze credit reports when a child’s identity has been used by a thief.
The Fair Credit Reporting Act requires that bureaus offer credit freezes and thaws for free, and that they honor freeze requests for children under 16, starting Sept. 21.
Many states didn’t require the bureaus to offer credit freezes if a child’s identity hasn’t already been compromised.
That changed with the federal Economic Growth, Regulatory Relief, and Consumer Protection Act, which was signed into law May 24. The law loosens banking regulations enacted after the financial crisis, but also amends the Fair Credit Reporting Act to require that bureaus offer credit freezes (and thaws) for free and to honor freeze requests for children under 16, starting Sept. 21.
Credit freezes for older children still tricky
Before the new law, only one credit bureau, Equifax, would create and freeze a report at a parent’s request regardless of where the parent lives.
Equifax isn’t being cooperative as a mea culpa for its sins. This was the bureau’s policy even before last year’s breach, when thieves made off with about 148 million people’s information including names, birthdates, Social Security numbers and some driver’s license numbers.
Experian and TransUnion, the other two major bureaus, have long insisted that parents shouldn’t rush to shut down their kids’ files. “A proactive file freeze is a drastic solution that we only recommend when a child’s identity is being used fraudulently,” is how TransUnion puts it.
The bureaus have to follow federal law after Sept. 21 in creating and freezing files for children under 16. But Experian and TransUnion haven’t announced any intention to honor such parental requests for most children ages 16 and 17.
While most states passed “create and freeze” laws for minors, the vast majority of those laws apply only to children under 16. Only Alaska, Illinois and Oregon require the bureaus to create and freeze files for older children. (Oregon’s law defines a “protected consumer” as someone 16 or younger, so 17-year-olds are out of luck.)
Identity theft risk is much higher for kids
No one should have to wait to become a victim when prevention is possible. Children may be at greater risk than adults.
Carnegie Mellon University’s CyLab found the identity theft rate for kids was 51 times higher than that for adults, according to a 2011 report. The report found 10.2% of the 42,232 children studied from 2009 to 2010 had someone else using their Social Security numbers. The rate for adults was 0.2%.
Identity thieves target children because the crimes can go undiscovered for years.
The youngest victim was five months old. One teenager had over $725,000 in debt on 42 credit accounts opened by eight people. The debt included mortgages, auto loans and collection accounts for medical bills, utilities and credit cards.
Creating a credit report for those younger than 18 can create problems of its own. The report links the child’s name to a Social Security number, information criminals could use for other kinds of fraud that don’t involve credit checks, such as employment or medical identity theft.
Other issues are that freezes for children under 18 can’t be set up online and parents have to keep track of the personal identification number needed to lift the reports when the child is older than 18 and needs credit.
A freeze also won’t typically prevent the child’s Social Security number from being used for synthetic identity theft, where thieves use real and fake information to create new identities.
Velasquez in the past discouraged parents from trying to create credit reports when they didn’t exist, fearing it would “muddy the waters.” But given the rising risks, parents should consider doing what they can, including credit freezes, to protect their kids, Velasquez says.
“The good outweighs the bad now with all these data compromises,” she says.
This article was written by NerdWallet and was originally published by The Associated Press.