Benefits of a Credit Freeze

Identity theft is growing, with more than 11 million victims in 2009, according to the 2010 Identity Fraud Survey Report compiled by Javelin Strategy & Research. That number represents an increase of one million people since 2008, Javelin explains. Criminals harvest personal information, then use it to get credit in the victim's name. Clark Howard, host of consumer advocacy television and radio shows, advises that a method called a credit freeze stops this from happening.

Definition

A credit freeze is an action that "freezes" a consumer's credit records so they cannot be accessed without permission, Clark Howard explains. The consumer has a personal identification number (PIN) to temporarily "thaw" the file when an authorized party needs to view it. For example, thaws are needed to apply for loans and credit cards. A thaw is done for a specific creditor or a specified length of time. The files are refrozen once the creditor accesses the information or the time runs out.

Benefits

Most lenders -- other than those already doing business with someone -- cannot access a person's credit records when they are frozen. This keeps criminals from opening any new credit cards or getting loans with a stolen identity because they do not have the PIN. Freezes prevent identity theft and also help victims because their stolen information becomes useless for getting fraudulent accounts.

Time Frame

A credit freeze lasts until the consumer decides to remove it from the files. This is more beneficial than a fraud alert, which is a free service for identity theft victims that alerts lenders to carefully verify any new accounts. An alert only lasts 90 days unless the consumer extends it. The extension is limited to seven years and requires a police report, according to the Federal Trade Commission.

Process

Clark Howard, host of consumer advocacy radio and television shows, explains that separate credit freezes must be done with each of the three national credit bureaus. Experian, Equifax and TransUnion all have forms on their websites for both freezes and thaws, or the process can be done through certified mail. Consumers can either choose their own PIN or the credit bureau can generate it. There is a separate number for each bureau.

Cost

Credit freezes usually have an associated cost, although fraud victims can place them for free in certain states. It generally costs up to $3 to $10 to place a freeze and a similar amount to temporarily thaw the records for a credit check, according to Clark Howard. Some states mandate no-cost or reduced price freeze for senior citizens.