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Money Matters

Credit Freeze vs. Fraud Alert: When to Use Them and Why

If you find yourself the victim of identity theft, you may not know where to turn or what to do. Sometimes, you’ll get a call from your bank letting you know that your identity, or personally identifiable information like your name, address — even your social security number — has been compromised. They may offer up a few suggestions on what to do next with initial fraud alerts like these. What if you get the wrong advice? Is “watching and waiting” really a good strategy?

Fraud alerts and credit freezes are two primary ways that can help to halt new credit applications from proceeding, but which one’s right for you? And what are the risks? Take a look at our tips on how to lock down credit history inquiries and limit access to your data so you’ll have a better idea of what to do if the unexpected should happen to you.

What’s the Difference Between a Credit Freeze and a Fraud Alert?

Whether you’re the victim of a data breach or your ID’s been hacked some other way, you’ll probably want to get in touch with each of the three major credit bureaus. Let them know what happened and tell them you want to enhance security. A fraud alert may be a good first move if no trouble is detected. It will require the credit bureau to take additional measures to prove your identity before they release your credit report on future inquiries.

If you feel there’s an immediate threat, or if it looks like new attempts have been made to open new lines of credit, you may want to go with a credit freeze. Credit security freezes can halt all inquiries into your account and require a PIN for any data to be released by a credit bureau.

One key detail you’ll need to know right away is that both of these options only help to prevent new accounts from being opened. If your existing credit card information is compromised, fraudsters can continue to make purchases until that card is cancelled, even with a credit freeze or fraud alert in play.

That’s where credit monitoring services from a home insurer, like those we offer in conjunction with CyberScout, can help to round out your identity fraud protection strategy. We’ll help you repair any damage done to your good name — think attorney fees, lost wages and certified mail.

What Is a Fraud Alert?

There are two kinds of fraud alerts you can activate on your credit report. Both services are now free and need to be activated individually with all three major credit bureaus. Fraud alerts urge third parties to take extra steps when verifying your credentials — prior to extending you credit. You’ll need to contact only one of the bureaus: TransUnion, Equifax and Experian to let them know you want one placed on your account or do so through their website or app. The credit bureau you contact must pass the request on to the other two bureaus.

It will be up to individual creditor to increase the scrutiny and security they use when vetting your identity as new credit applications roll in, depending on the type of fraud alert you choose.

The 90-day fraud alert

Use this alert which ups the security and required credentials for any new credit applications . If you go with this option, you’ll need to renew it every 3 months to keep it active. Without doing so, it will simply fall off, and the vetting requirements for your account will default back to normal.

The 7-year fraud alert

If you’ve been the victim of identity theft in the past, you may qualify for enrollment in this extended fraud alert program. The same strict criteria as the 90-day alert will be used each time a new credit application is submitted to a bureau, the difference being: it’s going to persist for 7 years before dropping off.

What are the pros and cons of a fraud alert?

When you choose the 90-day fraud alert program, you’ll be entitled to a free credit report. And if you continue to re-enroll in it every three months, the law says that you’re entitled to another free credit report. So that’s a big bonus. That means up to 4 free reports — one each quarter — and can really help you to track your credit scores and monitor your credit more closely.

On the other hand, with this added security and scrutiny comes increased vetting requirements — to verify your identity when applying for a loan, for instance. You may find it inconvenient to navigate these heightened measures if you’re planning on applying for credit in the near future.

What Is a Credit Freeze?

Credit freezes are designed to lock down access to your credit report — and thereby shut down any new credit applications. Because lenders won’t be able to assess your financial data or see your payment history unless you allow them access with your PIN, any and all new attempts to ping your credit report will fail when you freeze your credit. If you’ve suffered a financial loss as a result of an ID theft, a credit freeze may be a step in the right direction.

What are the pros and cons of a credit freeze?

Building up a positive credit profile is key if you’re in the process of saving for a home. If your personal information has been compromised in the past, it may be wise to contact the bureaus and place a freeze in order to help ensure stability of your credit profile.

One real benefit to executing a credit freeze is the ability to selectively turn it on and off with your PIN. After you launch a freeze, you’ll be issued a PIN by the individual bureau. So, you’ll need to keep track of three different PINs when a freeze is active. If you want to grant a qualified lender or other group access to your credit history, they can get the data they need to make an informed decision about your credit-worthiness after you provide that PIN.

When you’ve got a credit freeze in place, you’re dependent on that PIN to grant access or even lift the freeze altogether. If you lose that PIN, you’ll need to go through heightened measures — which can vary by credit bureau — to prove your identity, and that can be a difficult process to navigate.

Find the Right Coverage for Your Home and Your Identity

So, there you have it — two different ways to keep tabs on your credit profile to better manage your online financial data. Tools like these help you to take control of your financial history and realize your dreams. Another key way to build out protection for everything that means so much is with a well-tuned homeowners insurance policy. Get in touch with your American Family Insurance agent today and check out your coverage options. You’ll find real peace of mind with our easy to understand policies and protection.

This article is for informational purposes only and based on information that is widely available. This information does not, and is not intended to, constitute legal or financial advice. You should contact a professional for advice specific to your situation.

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