Freezing Your Credit: Why It's A Bad Idea

by Craig Peters, Contributing Writer   


If you're concerned about identity theft (and who isn't these days?), you may be hearing about people choosing to freeze their credit as a way to thwart ID thieves. Freezing your credit simply means restricting access to your credit report information.

There's good and bad in everything, of course, and that goes for freezing your credit too. It may sound like a good idea, but be sure to consider the downside first. For example:

Fees, fees and more fees

You can't just freeze your credit at one monitoring service; you need to do so at all three — otherwise it's like locking one door in your home but leaving two other doors open. Each service will charge you a fee. If you need to lift the freeze because of a legitimate credit request, that will be an additional fee.

Modest protection at best

A credit freeze is effective in preventing identity thieves from opening new credit or charge accounts, but according to the Federal Trade Commission, credit card fraud accounts for only 23 percent of identity theft complaints.1 Phone, utilities, and employment fraud account for 32 percent of complaints, and a credit freeze won't do much to combat those sorts of ID theft.

Inconvenient for financially active people

If you're planning on opening a new credit card account, taking out a personal loan, applying for a mortgage, getting a new insurance policy, or performing other similar financial activities, you may not want to freeze your credit just yet. If you're using credit wisely as a personal financial tool, having a freeze on your credit will make getting new credit very inconvenient.

Before you make any decision one way or the other about a credit freeze, be sure to learn about the credit freeze laws in your state.

There's no right decision for everyone; freezing your credit is just one item in your credit monitoring toolkit. Whether it's right to use it is entirely up to you — and your specific financial situation.

Footnotes
1 Consumer Fraud and Identity Theft Complaint Data, Jan - Dec 2007, Federal Trade Commission, February 2008