Credit "Freeze": New Weapon Vs. I.D. Theft

Before you begin your holiday shopping, there's one thing you should strongly consider doing -- and it's not making a list!

Evidence suggests that more people have their identity stolen during the busy shopping season than at any other time of year, and that could be a big, expensive headache.

But, The Early Show money maven Ray Martin explained Thursday, there's a new way to protect yourself.

It's called a credit freeze.

Although it's been available in some states, now everyone in the country can shut down access to his or her credit report, thanks to a move by credit bureaus last week.

A credit freeze, Martin points out, is exactly what it sounds like: It prevents potential new creditors from accessing your credit report without your explicit permission. That means no one can use your name to take out a loan or sign up for a credit card.

Ray says it's a fabulous idea, and he plans to sign up immediately himself.

He stresses that we're talking about preventing identity theft here, not preventing credit card fraud. Freezing credit does NOT someone from getting your credit card number and using that information to charge things. However, it WILL stop someone from opening new credit accounts in your name, putting their utility bill in your name, etc.

In general, identity theft is much more serious than credit card fraud. There are express limits in the law on your liability in the event someone uses your credit card number, but no such limits exist for I.D. theft, and you might not even realize your identify has been stolen for long periods of time.

A credit freeze, Martin observes, is like the ultimate lock-box around your precious credit report. However, the freeze also stops you from accessing the report.

Let's say you walk into a department store, do a lot of holiday shopping and decide to open a store credit account in order to save 10 percent on your purchases. You wouldn't be able to. You can't apply for and receive instant credit like that. Instead, you would have to call the credit bureaus beforehand, ask them to lift the freeze, apply for the credit, then have your accounts re-frozen.

There's the other catch: You must pay each of the three credit bureaus $10 to freeze your credit. You also have to pay to lift the freeze. For a couple, that means $60 to enact the freeze, $60 more if they want to apply for a loan and lift the freeze, then $60 more to reinstate the freeze.

But, if you've been a victim of identity theft, it's all free.

More good news: All states have different rules, so the standard $10 fee doesn't apply across the country. In some states, the service is offered for free, and others charge only $5.

Regardless of some of the apparent hassles, Martin says everyone should freeze their credit reports before doing any holiday shopping. In particular, he recommends that anyone who has been a victim of identity theft sign up for a credit freeze immediately. That also makes a lot of sense for kids, who are a growing target of I.D. thieves and won't be applying for credit anytime soon. It could also be a good option for "mature" creditors -- adults who don't plan to apply for a loan anytime soon.

But, Martin notes, even if you do intend to apply for credit soon, you shouldn't dismiss this new opportunity: The associated fees are small compared to what it will cost you in both time and money to straighten out a stolen identity.

To have your reports frozen initially, you need to send a certified letter to each credit bureau. Check out each bureau's Web site for details on what needs to be included in the letter. For the most part, they need very basic information, such as your Social Security number, birth date, etc., and a copy of your drivers license and/or utility bill.

A credit freeze is the only thing you can do to stop identity theft before it begins. But, if the credit freeze sounds a little extreme for you and you still want to do something to protect your identity, you have two other options, Martin says.

You can institute a "fraud alert," a special message you request be placed on your credit report, requiring lenders and merchants to verify your identity before issuing any new credit. This is free, but there's a chance lenders could ignore the alert. And you could sign up for credit monitoring, and pay a credit bureau $5 to $15 a month to send you an e-mail alerting you to any changes in your credit report. That could alert you to unusual activity, such as a card being opened in your name that you didn't know about.

BACKGROUND ARTICLE

For the first time, everyone in America can now do something to prevent identity theft.

On Nov. 1, the nation's three credit bureaus gave all U.S. consumers the ability to shut down access to their credit reports, making it almost impossible for a stranger to get the data needed to commit financial identity theft. The process is called a security freeze.

The change was not really voluntary. The credit bureaus battled with state legislators for nearly four years to avoid making the freezes available to consumers. But after 39 states passed security freeze laws of one kind or another, the industry decided earlier this year to make the option available to everyone. But there's a catch.

Using security freezes can be costly, and they can be a hassle. But that's just the bad news. I'll save the good news for later.

Here's the main "gotcha." For most of you, it will cost $10 to establish a security freeze. And once a freeze is in place, you won't be able to apply for new loans without "thawing" the report so a lender can assess your credit information. That costs money too -- $10 each time you need a car loan or a home loan. That doesn't sound too bad until you realize that there are three credit bureaus, and many households have two adults. That means it could cost a couple $60 each time they set up or lift a freeze.

Then there's the hassle. Setting up a freeze requires irritating paperwork like sending certified letters. And it means keeping track of freezing and thawing. It does no good to freeze one or two reports. If you want real identity theft protection, you'll have to freeze all three. If you want to get a new credit card, you'll have to thaw at least one report. To buy a new house, you'll probably have to thaw all three, then make sure they are frozen again.

Here's the good news. All those state laws about security freezes are still in effect, and some forward-thinking legislatures imposed price caps on the process. So a freeze might be cheaper, depending on where you live. In Maryland, for example, consumers pay a maximum of $5 for freezes. In New York, the initial freeze request is free.

Advice for I.D. theft victims
There's more good news: I.D. theft victims everywhere can now get and maintain security freezes for free - free to set, free to thaw and free to permanently remove.

The advice for I.D. theft victims is easy: Follow the links below and freeze your credit reports immediately. A security freeze is the best way to restore your peace of mind. The freeze won't stand in your way when you need a new credit card or loan; there will just be a small speed bump. You will have to give the bureaus a password -- a PIN code similar to a debit card password - to let you unlock your report so a creditor can peek at it. You might have to think a bit more before you obtain new credit, but that's not such a bad thing.

To get a free freeze, you will need a police report or similar government document to prove you are a victim.

One note about the process of recovering from a bout with an identity imposter: The police or your financial firm might suggest that you set up a "fraud alert" or "security alert" on your account. The proper term is "fraud alert," which is very different from a security freeze.

Fraud alerts are easy to set up (a simple phone call will do) and free. Unfortunately, they often don't work. The alert is simply a note in your credit file that advises businesses that you might be a victim of I.D. theft. Lenders can still pull your credit report and dole out loans or credit cards in your name. Fraud alerts also expire in 90 days, unless you follow up with paperwork, so you might as well get a freeze.

Security freezes provide much stronger protection. No one can access your credit report without your permission, period.

The credit bureaus encourage consumers to get only a fraud alert because their agenda is to keep you an active participant in the credit market (i.e., they want to keep pushing credit cards at you). You are better off with a security freeze, and don't let anyone tell you otherwise.

ADVICE FOR EVERYONE ELSE

The decision to freeze or not is a bit more nuanced for those who haven't been victimized by identity theft. It's hard to tell someone to pay $60 and fill out of bunch of paperwork as a purely preventative measure. In states where security freezes have been available for years, very few consumers have signed up.

Consumers Union is very high on freezes. Gail Hillebrand, the group's credit bureau expert, compares freeze fees to paying for insurance.

"If you are the person in the household who will have to unravel the identity theft after it happens, then you probably think $10 a pop is a good deal," she said. Consumers who are already paying for $10-per-month credit monitoring services should cancel and pay for security freezes instead, she said.

For consumers who pay their bills on time every month and stay on top of their paperwork, a freeze is a good choice. But many consumers will have a difficult time keeping track which reports have been frozen and which have been thawed, and how much they're paying in fees. If that's you, I can't recommend setting up and paying for freezes. Instead, take the time to write one letter to your state legislator asking why consumers in New York get freezes for free and you don't.

There is a class of consumers who are great candidates for a freeze: Those whom Hillebrand describes as "mature in the credit market." Many older consumers have as many credit cards as they'll ever need and have no plans to buy a car or a house in the near future - or perhaps ever again. For them, a security freeze is great insurance against becoming a victim of elder fraud, and obviously won't be a hassle to maintain, as thaws are unlikely. If you or your parents fit that bill, the $30 or $60 that it costs to sign up for freezes would be money well spent.

In a few states, seniors get to freeze their reports for free. Check the links below for specifics.

HOW TO DO IT

Setting up a freeze isn't rocket science, but it will take you about as much time as it takes to make a loaf of bread. So here's the recipe.

Instructions for residents of each state are slightly different. Fortunately, the three credit bureaus have fairly simple grids on their Web sites explaining what the costs are and the process is. Remember, you'll have to get a freeze at all three bureaus.

There are a couple of asterisks I need to tell you about. While the freeze provides solid identity theft protection, it's hardly foolproof. It can't stop non-credit-related forms of ID theft, such as the creation of a duplicate driver's license or criminal identity theft (when a suspect gives your name to police when booked for a crime). It also won't stop an undocumented worker from using your Social Security Number to obtain employment.

And sadly, it won't stop every company from accessing your credit report. New creditors are largely frozen out, but existing lenders -- your current credit card company, for example -- can still view your report and offer you new credit cards. It also won't stop those pre-approved credit card offers. The bureaus can still give your name and address to credit card companies. Of course, you can stop those mailings by calling 1-888-5OPTOUT or visiting http://optoutprescreen.com.

Finally, a freeze may lead to minor inaccuracies in your credit report. Companies that provide data to the bureaus might not be able to update your address information or other vital statistics if you move or change your name. So if you get a freeze, you should check your credit report at least once a year at AnnualCreditReport.com and make sure the information is accurate.

Despite these imperfections, a credit freeze is the best thing you can do - and in fact, the only thing you can -- to stop identity theft before it starts. Think of it like The Club you place on car steering wheels. Yes, the car can still be stolen, but many car thieves see a Club and move on to another target. I.D. thieves who face security-freeze speed bumps when trying to get credit cards or loans in your name are just as likely to move on to the next Social Security number.