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According to an annual report published by the Federal Trade Commission (FTC), Americans reported losing over $3.3 billion to fraud in 2020. In particular, cases of identity theft saw the biggest increase. A total of 4.72 million identity theft reports were filed in 2020, a considerable increase from the 3.24 million in 2019.
This means almost one in five people lost money in an imposter scam! And the numbers show that younger people are losing more money to fraud than older people.
This is precisely why it’s so important to protect your information.
If you’re worried about fraud or identity theft, you might want to consider taking advantage of a fraud alert or a credit freeze. Both of these options are free and can help mitigate the risk of fraud. However, a fraud alert and a credit freeze are different, and you want to make sure you’re using the right one for your situation.
Essentially, a fraud alert is like an extra layer of protection on your account. New creditors have to go through additional screening to verify your identification before approving a loan.
Unfortunately, a fraud alert isn’t foolproof, and false applications can still sometimes pass through. On the other hand, a credit freeze is more reliable. You’re essentially freezing your account so no one—including yourself—can open new credit accounts under your name.
Keep reading to find out when you should choose a fraud alert and when you might want to freeze your credit.
What is a fraud alert?
A fraud alert is like a warning on your account. When a new creditor is reviewing your application and sees a fraud alert, they’re expected to take extra reasonable measures to verify your identity. Essentially, they need to make sure it is, in fact, you who’s trying to open the new account. Most creditors will verify your identity by calling you and asking some identification questions about yourself and the application.
A fraud alert is free and typically lasts one year. After that time, if you’d like to extend it, you can renew the fraud alert.
There are three main types of fraud alerts:
- Initial fraud alerts: An initial fraud alert lasts one year, after which you can choose to renew the alert.
- Extended fraud alerts: An extended fraud alert stays on your credit report for seven years. You can only request an extended fraud alert if you have a police report verifying that your identity has been stolen. When you place an extended fraud alert, your profile will be removed from marketing campaigns for future financial products (such as preapproved credit cards).
- Active-duty fraud alerts: Active-duty fraud alerts allow military members to put a fraud alert on their account while they’re serving the country in a remote location. Individuals will need to provide proof of their posting.
Since fraud alerts are free, the benefits are apparent. First, you get extra security from identity theft. Additionally, when you place a fraud alert on your account, you’re entitled to a free copy of your credit report. This free copy is in addition to the standard free copy consumers get annually.
The main drawback of a fraud alert is that it’s not guaranteed to protect your information. For example, if the person trying to commit identity fraud has enough of your identifying info, they could pass the screening questions and still move forward with their false application.
Who are fraud alerts for?
Fraud alerts can be a great proactive measure for anyone who suspects they’re vulnerable to identity fraud. It’s also a good step for anyone who’s recently caught some suspicious activity on one of their accounts. If this applies to you, a fraud alert might stop future attacks on your account.
How to set up a fraud alert
To set up a fraud alert, simply contact one of the three major credit bureaus. You don’t have to contact all three. Once you’ve requested a fraud alert with one bureau, they have to notify the other two.
What is a credit freeze?
A credit freeze is like a permanent lock on your account when it’s in place. It stops any new creditors from opening a new account under your name (it won’t affect your existing accounts at all). Of course, the credit freeze will apply to you as well, so you won’t be able to open any new accounts either—not easily, anyway. Instead, if you need to open new accounts, you can temporarily lift the freeze while you apply.
When you request a credit freeze, a credit bureau has to activate it within 24 hours. A credit freeze is free and stays active until you “unfreeze” it yourself, which usually takes an average of three business days to complete.
In comparison to fraud alerts, credit freezes are more secure. Creditors can’t open new accounts under your name, so any attempts at identity fraud this way simply won’t be successful.
However, a credit freeze might also cause some inconveniences in your everyday life. For example, waiting three days for your account to unfreeze might make loan applications more complicated than they need to be.
If waiting doesn’t sound ideal to you, a “credit lock” might be a better solution. A credit lock is almost the same thing as a credit freeze but gives consumers the ability to instantly lift their lock from their phone or a secure website. (Credit locks do usually cost money though, so they might not be your first choice.)
Who are credit freezes for?
Credit freezes are an ideal solution for anyone who wants peace of mind about their credit report, whether their identity has been stolen in the past or not. Additionally, they’re great for people who don’t see themselves opening many new accounts in the near future.
How to freeze (and unfreeze) your credit
Unlike with a fraud alert, you’ll need to contact each credit bureau individually to place a credit freeze. You can mail in a credit freeze application or call the bureau directly. Once you have a credit freeze in place, you’ll be given a PIN or password system that will allow you to access your account. You can use this PIN to unfreeze your account in the future.
As stated above, the credit bureaus say consumers should expect to wait three business days to have a freeze lifted.
Which option should you choose?
Ultimately, picking between a fraud alert and a credit freeze is going to be a case-by-case decision. Neither a credit freeze nor a fraud alert impacts your credit score. The most significant difference is the degree of severity—credit freezes make identity theft or fraud nearly impossible, whereas credit alerts just make it more unlikely to happen.
So if you’re simply worried about identity theft, a fraud alert is the less drastic option. On the other hand, if you feel you’re vulnerable to fraud, a credit freeze is probably best.
Technically you could set up both if you wanted to, putting a fraud alert on top of your credit freeze. It doesn’t hurt, but since a credit freeze is so secure anyway, it’s not a necessary step.
When deciding between the two, don’t forget to consider your circumstances. If you’re going to be requesting credit in the near future, a credit freeze might not be for you at this time.
Other ways to protect your identity
Luckily, fraud alerts and credit freezes aren’t your only option when it comes to protecting your identity. You can protect yourself by using secure passwords, signing up for credit monitoring, considering a credit lock and reviewing your credit reports regularly.
And if you’ve already been a victim of identity theft, consider credit repair services. Even if it’s evident that you’re the victim, the bureaus don’t make it easy for you to fix the damage done to your credit. CreditRepair.com can help make the process as smooth as possible.
