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It’s not news that identity theft is a serious threat to your personal finances.
In 2020, consumers lost $56 billion to this scam and 49 million Americans became victim of identity theft.
You may have heard people talking about the various ways to protect yourself.
One of the simplest things you can do is put a freeze on your credit.
It’s easy to do and makes it much harder to become a victim.
But it doesn’t eliminate the risk of identity theft.
In this post, I share with you the biggest pros and cons of freezing your credit.
By the end, you will know if this is a solution worth pursuing.
Table of Contents
10 Important Pros And Cons Of Freezing Your Credit
5 Pros To Freezing Your Credit
If you are interested in knowing the advantages of freezing your credit, here are the biggest ones to consider.
#1. Less Worry About Identity Theft
The fact that a scammer can open any type of credit in your name without you knowing is scary.
Imagine getting the mail one day or receiving a phone call from debt collectors about an overdue bill.
Or worse, having the police show up at your home or place of business.
This is a reality for many victims of identity theft.
Luckily, when you freeze your credit, no one, not even you, can open up new lines of credit.
In order to open a new credit account, you need to temporarily lift the freeze.
This lift can last just a few business days to a few weeks and will automatically end when you tell it to, refreezing your credit again.
Lifting the freeze will allow new creditors to review your file without issue.
Having this peace of mind is the biggest advantage of freezing your credit.
#2. Free To Do
In the past, the major credit bureaus, Transunion, Experian, and Equifax all charged a fee to freeze your credit.
But this is no longer the case with the passage of the Economic Growth, Regulatory Relief, and Consumer Protection Act by the Federal Trade Commission.
All 3 allow you free credit freezes.
You can freeze and unfreeze your credit as often as you would like without paying a fee.
#3. Stops Impulse Purchases
If you are someone who tends to buy on impulse, a credit lock could benefit you.
This is because you can’t easily go shopping and open a store credit card.
Since your credit file is frozen, no one can perform a credit check, including potential creditors.
The same is true if you are looking at buying a car, or for any other reason you might need to get your credit history checked.
Because of this, you won’t be able to open up new accounts, potentially saving you from ruining your finances.
#4. Zero Impact To Credit Score
There is no impact to your credit score with a credit freeze.
Your score can still rise and fall depending if you make on time payments, your debt to credit ratio and other factors.
In the past, there was a myth floating around placing a freeze could hurt your credit score.
The reality is this is not the case at all.
#5. Less Junk Mail
One of the most underrated benefits to freezing your credit is less junk mail.
Since I have frozen mine, I rarely get credit card offers or other financing offers in the mail.
The only time I do is from current creditors who I already do business with.
They know that I am a good customer and as a result send me offers.
But even this is rare.
5 Cons To Freezing Your Credit
As great as the reasons are above, there are drawbacks to freezing your credit.
Here are the important ones you need to know about.
#1. Need To Unfreeze When Applying For Credit
The biggest disadvantage of freezing your credit is the hassle of unfreezing your credit if you want to apply for a credit card, mortgage, car loan, or other product.
It is not hard to temporarily unfreeze yours and you can set the specific dates you want your credit report to remain open.
The issue is remembering you have to do it.
For example, the other year my wife and I were looking to refinance our mortgage.
The potential lenders came back and said everything looks good on my wife’s credit report, but they couldn’t access mine.
Then I remembered I have a freeze I need to lift.
It took me all of 5 minutes to do it, it was just an inconvenience.
#2. Delay When Applying For Jobs And Other Situations
In addition to opening new loan products, many other companies look at your credit too.
This includes new employers, auto insurance companies, and more.
When your credit is frozen, they cannot see your credit worthiness and will reach out to you to lift the freeze.
Again, not a big deal, just a hassle.
#3. Isn’t 100% Effective
As great as a security freeze is with stopping thieves from opening new accounts in your name, it won’t stop all identity theft.
This is common false sense of security that you need to be aware of.
Identity thieves can still gain access to your bank accounts and current accounts and place unauthorized purchases that you need to handle.
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If you spot suspicious activity or fraudulent charges in any of your credit card accounts, you need to contact the credit card company.
They will look into the issue and issue you a new credit card number to be safe.
The identity thief could also get access to your Social Security Number or other personal information, like your address, phone number, date of birth, etc. as well and cause harm this way.
They just won’t be able to open new accounts in your name.
To spot this fraudulent activity, you need to review your own credit report.
Luckily you can get a free credit report annually.
Take the time to review your file and see if anything looks odd.
Other extra steps can be to set up fraud alerts with your credit card companies.
If they see suspicious activity, they will flag it and reach out to you.
All of these great tools will help to limit the chances of you becoming an identity theft victim.
#4. Need To Freeze With Each Credit Bureau
There are 3 major consumer credit bureaus and you need to place a freeze on your credit with all three.
There is not one freeze that covers them all.
And since different businesses use different bureaus to review your credit, you need to freeze all 3 if you want this solution to be effective.
#5. Need To Remember Your PIN
When you create your account at each of the major bureaus, you need to create a password and a personal identification number or PIN.
This secures your account so only you can unfreeze your file.
The issue here is your PIN needs to be 6 digits or longer and this just one more piece of information you need to remember.
The good news is that if you forget your PIN, you can still access your account.
When I first froze my credit the credit bureaus had these warnings about never forgetting my PIN as it was the only way to access my account.
But I was able to answer some security questions to get into my account when I couldn’t find where I wrote my PIN down.
I’m not sure if you can always access your account this way, so make sure you remember your PIN or write it down and keep it in a safe place.
Final Thoughts
There are the biggest pros and cons of freezing your credit.
While it is not a perfect solution, it is something I recommend you do.
Yes there are hassles when applying for new credit or trying to refinance.
But knowing that no one can open new accounts without your knowledge is priceless.
And seeing that it is free to do, it is something you should consider doing right now.
I have over 15 years experience in the financial services industry and 20 years investing in the stock market. I have both my undergrad and graduate degrees in Finance, and am FINRA Series 65 licensed and have a Certificate in Financial Planning.
Visit my About Me page to learn more about me and why I am your trusted personal finance expert.