Difference Between Fraud Alerts and Credit Freezes

By John Atkins

Consumers have two powerful tools to protect their credit: fraud alerts and credit freezes. Both of these restrict efforts to open fraudulent accounts in your name, and allow you to exercise oversight on your credit and financial identity.

Proactive consumers can use these tools to prevent fraud before it even occurs. To use fraud alerts and credit freezes effectively, however, you must understand how they work, the differences between them and how each interacts with your credit.

What is a Fraud Alert?

Fraud alerts work like special flags planted on the soil of your credit file. Lenders who see these flags know that they need to take extra care with the approval of new lines of credit. Fraud alerts get placed with one of the three major credit bureaus, which then alerts the other two. Before they issue credit, lenders will pull your credit file from one of these bureaus — either Experian, Equifax or TransUnion — and see the fraud alert for a period of three months.

As a preventative measure, fraud alerts help protect both consumers and lenders.

“Fraud alerts place a red flag on your profile,” says Kevin Haney of A.S.K. Benefit Solutions. “If a third party sees this alert in connection with a new account application, they have a duty and financial interest to take extra precautions.”

These extra precautions generally involve efforts to verify the identity of the applicant. Because of this, you’ll want to make sure that you provide contact information — including an up-to-date phone number — when you file your request for a fraud alert.

The Big Chill

While fraud alerts are useful, they can still leave you vulnerable to fraud. Robert Siciliano, an expert in personal security and identity theft, explains:

“Fraud alerts only suggest that lenders take steps to contact you before establishing credit in your name. They don’t stop lenders from issuing credit in any way.”

A credit freeze provides a more definite means to protect your credit. With a freeze, lenders cannot access your credit files at all, which prevents them from issuing credit under your name. If you have become the victim of identity theft, you should undertake an immediate freeze on your credit.

“A credit freeze locks down you credit report so lenders can’t see your scores,” explains Siciliano. “Even if thieves have your ID, they can’t get credit in your name as long as your credit is frozen.”

Impact on Your Credit

Both fraud alerts and credit freezes provide safeguards for the maintenance of your credit. In and of themselves, they have no impact on your scores.

“A credit freeze will not affect your credit history or score,” says Scott Smith, president of CreditRepair.com. “Freezes also won’t prevent you from obtaining a free credit report each year.”

While fraud alerts and freezes do not themselves impact your credit, the fraudulent activity that precipitates them most certainly will. Prior to 2008, only those who had suffered from identity theft could freeze their credit. Thankfully, this powerful protective measure is now available to all consumers for a small fee. Some experts recommend freezes to all consumers as a preventative measure.

“Get a credit freeze,” says Robert Siciliano. “A credit freeze is a good idea for anyone over 18, and is a great way to prevent new account fraud.”

Before you decide to freeze your credit, however, you’ll want to keep a few things in mind. Unless you have been the victim of identity theft, you will need to pay a small fee — around $15 — to each of the three credit bureaus. You will also need to practice awareness before you apply for loans since you will need to thaw your credit to give lenders access to your file.

With major payoffs for personal protection and little to no cost, fraud alerts and credit freezes are actions that all consumers should consider. The minimal effort it takes to contact the credit bureaus might save you untold headaches down the road. If you appreciate the value and freedom that a healthy credit report gives, do what it takes to keep your credit safe.

About the Author

John Atkins is the former community manager for Self.

Written on September 28, 2015

Self is a venture-backed startup that helps people build credit and savings.
Comments? Questions? Send us a note at hello@self.inc.

Disclaimer: Self is not providing financial advice. The content presented does not reflect the view of the Issuing Banks and is presented for general education and informational purposes only. Please consult with a qualified professional for financial advice.

Ready to join Self?