When you put a credit freeze on your credit report, you take a proactive approach to protecting your finances from fraud. It helps when you’re saving for a car, one of the biggest purchases behind a house.
Sadly, we live in a world of hackers and fraudsters. We don’t mean to instill in you a sense of panic. However, you probably open yourself to hacking every day. Using a credit or debit card, entering your social security number on a document, or supplying any financial information to someone else, can lead to hacking. In other words, someone can breach your credit firewall at any time.
Freezing your credit adds another layer of security to prevent someone who has stolen a piece or two of your financial information from opening credit accounts in your name. It doesn’t curtail identity theft, but it does help minimize the damage to your credit.
What does this have to do with buying a car? Imagine your surprise when you sit down at a dealership, ready to sign for a new car, only to discover someone posing as you just purchased one a few weeks earlier. Moreover, the car loan got put in your name. Yep, such things happen. A credit freeze adds another ring of protection around your financial information.
What follows is a tutorial on freezing your credit: What it means, what it does. Why you would do it and how to initiate the freeze. And when and how to undo it. We’ll even answer a few questions — one or two of which may be on your mind.
- What Is a Credit Freeze?
- What Is a Credit Bureau?
- How Does a Credit Freeze Work?
- Why Would You Freeze Your Credit?
- How Do I Freeze My Credit?
- How to Unfreeze Your Credit Report When Buying a Car
- What Are the Downsides to Freezing Credit?
- Credit Freeze vs. Credit Lock
What Is a Credit Freeze?
Right off the bat, let’s clear the air about what a credit freeze isn’t. It doesn’t freeze your current credit accounts, preventing you from using them. It also doesn’t keep you from using any available balance in, say, a home equity loan.
Nope, when you freeze your credit, you are actually freezing your credit report. So, you deny lenders access to any information a credit bureau may collect on you. In other words, you restrict access to the information a credit bureau stores in your credit file.
What Is a Credit Bureau?
Three major credit bureaus gather and store our credit information. For example, your report includes any open accounts, payment history, and any delinquencies, collections, repossessions, or bankruptcies. These credit files can also contain addresses, current and past, job history, etc.
Lenders supply much of the information in a credit bureau’s file on us. When a lender requests the background on a potential borrower, the credit bureau provides whatever information it has collected.
Three major credit bureaus collect and report your credit information:
- Experian
- TransUnion
- Equifax
We’ll provide more information below on these credit bureaus and their role in freezing your credit.
How Does a Credit Freeze Work?
In simple terms, freezing your credit prevents a potential lender from accessing your credit file. The lending agency conducts a credit check when you apply for a loan or credit card. This investigation of your financial history determines your risk level. Typically, the initial stop in such an investigation involves requesting an applicant’s credit report from one of the three major credit bureaus.
When you initiate a credit freeze, the credit bureau seals your file for lack of a better term. Putting a request in at all three credit bureaus should shut down or limit a lender’s search. Consequently, the lender won’t open a new line of credit in your name.
- Who Can Activate a Credit Freeze? Any person can freeze their credit report. This fact is true whether or not their identity got stolen.
- What Does It Cost? Here’s the good news: not a penny. You can freeze your credit report with any or all three credit bureaus for free.
- How Long Does It Last? When you freeze your credit, it remains frozen until you unfreeze or thaw it. You may thaw and then refreeze your credit whenever and as often as you like.
Who Can Still View My File?
Generally, here’s who can still access your credit report:
- You
- Current creditors
- Businesses with which you have a pre-existing relationship
- Employment inquiries
- Apartment/house rental reviews
- Insurance companies updating files
- Government agencies
- Debt collectors
Why Would You Freeze Your Credit?
The top reason for freezing your credit is because it significantly reduces the likelihood a scammer can open a fraudulent credit account in your name. Because a freeze prevents access to your report from the major credit bureaus, most lenders won’t open a new account in your name. For example, in the case of Experian, any lender attempting to access your credit file for a new account will have its request denied. Furthermore, according to federal regulations, Experian will inform the lender that your file is frozen.
Another reason is peace of mind that your credit report is more secure. Additionally, a credit freeze won’t lower your credit score.
When you want to purchase a car, any marks on your credit report can raise your interest rate if financing the vehicle. Placing a freeze can help prevent any additional dings and help you build your credit.
TIP: Did you know that you can calculate estimates of your monthly car payment using our calculator so you can budget for your next new or used car?
How Do I Freeze My Credit?
If you are ready to put a freeze on your credit report, you first need to know that you must do so with each of the three major credit bureaus. They don’t share information. However, the procedure for all three is painless and easy.
We’ve provided links to each of the three credit bureaus below. You must go to each, set up an account, and then click on the icon to freeze your credit. TransUnion does require the extra step of establishing a PIN to use when switching the freeze on and off. We set up accounts online at all three and completed the process in under 15 minutes.
- Experian: Head to Experian online.
- Equifax: Log on to Equifax or call 1-888-Equifax.
- TransUnion: Go to TransUnion.
How to Unfreeze Your Credit Report When Buying a Car
Although setting up an account at one of the three major credit bureaus and freezing your credit requires a few minutes, unfreezing it takes seconds. You can accomplish it in real time on your smartphone, laptop, or another device. All you need is your username and password. With TransUnion, you will also need your pin.
Just remember, the responsibility for freezing and thawing your credit is yours. You can unfreeze it for a specified period you choose and then refreeze it when the credit check and purchase are complete.
TIP: If you’re shopping for a new or used car, try using our car affordability calculator and plug in the car payment you want, and get real estimates of the total amount you can spend on a vehicle before you head to the dealership.
What Are the Downsides to Freezing Credit?
Like the disclaimers for a TV ad on a prescription drug, there are a few “buts” for freezing credit.
- A credit freeze isn’t a 100% guarantee. Fraudsters are creative and clever. One may manage to get at your credit by stealing your credit card information. However, crooks tend to harvest the low-hanging fruit. The more challenging you make things, the more likely they will move on to an easier mark.
- You must plan ahead. For example, when actively shopping for a car, you must thaw the freeze before shopping for financing, including financing through a car dealer. Although thawing a freeze requires only a few seconds, you must do it at all three credit bureaus. However, if the loan officer can share that information, you can always ask which credit bureau they use. You can then thaw your credit report with just that one bureau.
- You’ll need to keep track of your frozen reports. In the heat of applying for a car loan, mortgage, or some other line of credit, it’s easy to lose track of whether your freeze is engaged or not. If that’s the case, every so often, you may want to access your account at each credit bureau and double-check its frozen status. Again, this takes seconds at each bureau.
Credit Freeze vs. Credit Lock
In your efforts to seal your credit report, you have probably encountered both terms. Each helps keep your credit report closed to scammers attempting to secure credit in your name. The significant difference is that the federal government regulates a credit freeze and a credit lock is an unregulated compact between you and the credit bureau.
The main advantage of a credit lock is that it can be more comprehensive regarding which entities are allowed access to your file. A credit freeze freezes out inquiries by lenders seeking to open a new credit account in your name. Other entities like current creditors, the government, insurance companies, and similar organizations can still access your credit file. A credit lock can prevent many other entities from accessing your credit report.
Equifax and TransUnion offer credit locks for free. However, TransUnion requires you to participate in its TrueIdentity program. Experian requires your participation in a paid subscription program to lock your credit.
