In the modern world, credit is not seen as something people should be judged for. Instead, it has also become a tool to improve your financial power.
You can fund your purchases using credit tools and instruments, which is impossible in a lump sum. The credit can be taken for the house, car, or other purposes on the promise to pay it back.
Since credit financing is an essential part of our capital structure, the regularization of the industry and credit tools was also mandatory.
Therefore, different rules and regulations have been implemented for the facilitation of the public and industry as a whole.
When a creditor gets a loan application, he has a right to run hard or soft credit inquiries on the applicant to know his credit history.
However, modern-day credit tools like credit cards from every other company have made soft inquiries very common. What alarms people is credit scores getting affected by repetitive inquiries.
Therefore, certain tools like credit freeze/security freeze, credit lock, and fraud alerts are introduced to facilitate the general public.
In today’s article, we will talk about credit freeze and if you can prevent irrelevant soft inquiries by capitalizing on a credit freeze.
So let’s get into it.
What Is Credit Freeze?
A credit freeze is a practice the federal government allows to prevent identity theft. Citizens can freeze their credit reports and make them inaccessible to lenders.
The admissible practice of credit freezing protects the general public from criminals opening accounts in their name despite having access to SSN, date of birth, etc.
California was the first state to adopt the practice in the United States in 2003. The main objective behind the initiative was to prevent criminal practices related to fraudulent credit lines and loans through access to information.
All 50 states of the United States have credit freeze laws; the last state to implement the law was Michigan in 2018.
One reason why the implementation of the credit freeze law was necessary in the US is the increasing cases of identity theft.
How Does Credit Freeze Work?
Let’s understand how credit freeze work.
A credit freeze is also called a security freeze, and by choosing this option, you take out your credit report from access to lending companies and institutions. It serves as an additional layer of security to your credit.
Here is how you can freeze or unfreeze your credit.
Freeze Your Credit
To freeze your credit, you will need to provide your SSN, date of birth, current address, copy of government-issued ID/passport/driver’s license, copies of utility bills, bank statements, etc.
You can call all three credit bureaus separately, verify your information & identity, and proceed with the request to freeze your credit temporarily or permanently.
Unfreeze Your Credit
Later, if you decide to unfreeze, you can also do it conveniently. The most common instance when you need to unfreeze your credit is when applying for new credit.
The common terminology for unfreezing credit is thawing, and unfreezing is generally a very quick process. Depending on if you want temporary unfreezing or permanent unfreezing, you will need to follow the requirements accordingly.
Follow the instructions on each credit bureau’s website to begin the unfreezing process. You can also call the respective bureau for relevant assistance in the process.
If the sole purpose of credit unfreezing is to apply for new credit, you can ask your lender. Depending on which credit bureau the lender use, you can unfreeze that relevant account only.
Requirements For Credit Freeze
When you plan to place a credit freeze on your credit score, you must present the following information and documentation:
- Social Security Number
- Date of Birth
- Current residential address
- Copy of government-issued ID card, driver’s license, or passport
- Utility bills or bank statement copies
Facts You Should Know About Credit Freeze
Here are some of the facts that you should know about Credit Freeze:
It is free to freeze or unfreeze your credit
According to the US federal law that came into effect in September 2018, an individual can place a temporary or permanent security freeze across the nation without any additional fee or charges.
Misconceptions about security freeze and fraud alerts
Many people think fraud alerts are the same as a security freeze. We have explained the security freeze comprehensively, and it’s time to address fraud alerts.
These alerts are notices placed on an individual’s credit reports, which instantly alert the credit card companies or other extended credit holders about any fraudulent activity related to your credit.
Credit freezes do not impact your credit score.
Unlike the common misconception that a security freeze impacts your credit score, it has no truth. The credit freeze will not negatively impact your credit score; there is nothing to worry about.
Even more, all individuals can receive 12 months of free credit reports from all three nationwide credit bureaus for free, even if they have placed a credit freeze.
You have to freeze your credit with each credit bureau individually.
If an individual wants to freeze his credit in general, he can’t just place a freeze on the account of one credit bureau. You must have to place a credit freeze on each account with all three nationwide credit bureaus.
You can place a security freeze on someone else’s behalf.
There are special circumstances when a third person can place a security freeze on someone else’s credit.
There must be a signed Power of Attorney or court orders in that instance. The special circumstances can be the credit reports of a minor under 16 or an incapacitated adult. However, when you’re placing a credit freeze on someone’s behalf, you must verify your identity, his identity, and the legal authority to do so.
A credit freeze doesn’t protect you from other forms of identity theft or fraud.
A common belief about credit freeze is that once you place a credit freeze, you won’t need to worry about anything. People believe that the credit freeze will protect you from identity theft and fraud in any case.
However, the reality is that credit freeze protects you from a certain type of identity theft when someone tries to open an account in your name.
If you have a stolen credit card, the credit freeze won’t be effective in preventing any fraud or identity theft related to it.
You might get pre-screened offers even after placing a credit freeze.
A credit freeze doesn’t mean that your credit reports won’t be used to send you pre-screened offers from credit card companies or insurance companies.
The credit freeze puts a hold on hard inquiries only; therefore, you can still receive pre-screened offers from different companies.
Let’s address the most asked questions about the credit freeze.
Who Can View My Credit Report If It’s Frozen?
The credit freeze puts a hold on your credit reports, and no hard inquiries can run on your credit accounts. However, there are some situations when the institutions can access your credit reports:
- You can check your credit report or records
- The companies you have existing relationships with can also check your credit report
- Governmental agencies can access the reports for tax calculation and child support calculation
- Debt collectors on behalf of the previous creditor
- If you have subscribed to certain credit monitoring services
Does A Credit Freeze Prevent Soft Inquiries?
The short answer is No. If you have placed a credit freeze on your credit reports, it doesn’t mean that soft inquiries can’t be run on your account. It implies that a credit freeze doesn’t prevent soft inquiries. You can still receive pre-screened offers resulting from soft inquiries.
Is It A Good Idea To Freeze Your Credit Reports?
Depending on your circumstances, a credit freeze can or can’t be a good idea. A credit freeze can save you from further damage if you have already become a victim of any identity theft.
It can be a good idea to freeze your credit report when you receive a notification about compromised or breached personal and financial information.
What Can Be Consequences Of Credit Freeze As An Individual?
A credit freeze’s major consequence is that prospective creditors won’t be able to access your credit report. And it will also prevent you from identity theft related to opening an account in your name.