Tuesday, May 16, 2023
Anthony C. Kure, CFP®

Anthony C. Kure, CFP®

Managing Director of Northeastern Ohio Market, Senior Portfolio Manager, Principal
Management Team, Wealth Management Services, Cleveland - Akron

Benefits of a Deep Freeze

After another cold, and seemingly endless, winter here in the Midwest, the last thing anyone wants to read about is anything related to freezing or cold. Thankfully, we’re outlining the potential benefits of a Deep Freeze in a figurative and financial sense, not literal terms so no need to grab the wool hat and gloves again.  

It seems almost every week we hear news stories of data breaches and identity theft – an unfortunate symptom of such an increasingly “connected” society. The data shows the occurrences are almost commonplace these days as the Identity Theft Resource Center estimates 422.1 million records were compromised in 2022. While the trend had been decreasing lately, an increase occurred when a reported 221 million Twitter users’ personal information was made publicly available late in 2022.

From a financial perspective, the risk is criminals use private information to open new credit cards, apply for loans or government benefits, file fraudulent tax returns, or some other nefarious activity. There’s no shortage of software and services advertised today that offer some form of protection against this activity. As good as those services might be, one simpler and more cost-effective method for protecting personal credit can be very impactful, though it does require some legwork. This is the “Deep Freeze” or more commonly referred to as a “credit freeze.”

What’s a Credit Freeze and How Does it Work?

In short, a credit freeze is a proactive locking down of a consumer’s credit profile with the three main credit agencies. This prevents the opening of any new credit lines, no matter what. We think this can be very effective when compared to a reactive notification of a credit breach, which is what most identity theft protection services essentially provide (along with insurance and other services). While notifications of a breach are valuable, it still requires multiple steps to stop future activity, contact the bank to stop and reverse charges, and reapply for new credit cards. This also would require changing the billing information for all “auto bill” services to the new credit card that many people use to pay for subscriptions and other bills each month.

But to clarify, the credit freeze would NOT protect a taxpayer from fraud associated with tax returns or government benefits. In addition, it’s important to note a credit freeze will not protect existing bank or credit card accounts; this is only protection against opening new credit applications. However, a substantial headache can be avoided by shutting down this potential security hole.

In essence, the credit freeze works like this: Each person in a household (anyone with a social security number) would need to access the three main credit bureau’s websites and implement the “freeze,” which effectively prevents anyone from opening new credit with the name and social security number, whether it’s legitimate or some identity thief. The three main credit bureaus and the links to the credit freeze services are:

  1. Transunion: https://www.transunion.com/credit-freeze
  2. Equifax: https://www.equifax.com/personal/credit-report-services/credit-freeze/
  3. Experian: https://www.experian.com/freeze/center.html

These are the same credit bureaus that provide credit scores.

In Ohio, it used to cost $5 per site to initiate the credit freeze, but it is now free of charge. The information needed includes name, address, date of birth, Social Security number, and other personal information. At the end of establishing the user ID and password and providing the personal information, the user is issued a PIN that must be kept secured and never disclosed to anyone other than a trusted individual.  (Reminder: never respond to an unsolicited email to provide this information as this is most likely a “phishing scam” with a spoofed website that is just trying to capture personal information.)

Once frozen, anytime one of the three credit agencies is queried for a credit score when applying for a new credit account or loan, the request will be rejected, and the new account cannot be opened.

When applying for a new loan legitimately, the applicant will have to go online to each of these credit bureau sites and “thaw” credit. This “thaw” allows a window of time for new credit applications to be processed before being frozen again, which is typically 30 days but the user can specify. It may seem tedious and not worth the effort, but opening new credit lines is, at most, a once-a-year task. Even less frequent are applications for auto loans, mortgages, or home equity lines of credit.

What Are Risks to Freezing Credit?

One common misconception is that freezing credit can negatively impact credit score, but this is simply not true.  According to the Federal Trade Commission, a credit freeze has no impact on how this score is calculated.

Also, some employers use credit checks as part of background checks for applicants. If a person is applying for a new job, it’s usually a good idea to “unfreeze” credit reporting prior to applying as there isn’t much reporting back from the credit agency on why the credit score was not provided. This can reflect poorly on an applicant and can certainly affect the evaluation.

In addition, some insurance companies use credit scores to calculate risk and rates, which is something else to consider, though this is also an infrequent occurrence for most. Finally, the government’s “my Social Security” website requires credit to be temporarily unfrozen to set up the account initially. Credit can be refrozen after this is completed.

Bottom Line:

Given the dizzying number of accounts, usernames, passwords, and websites for an individual, and certainly a household, it’s likely nothing is 100% fool-proof to protect from data breaches and identity theft. We strongly suggest everyone needs to be vigilant in consistently checking bank account and credit card activity at least weekly for any fraudulent transactions. If anything looks suspicious, the financial institution should be notified immediately.

But a proactive credit freeze, which does take some time and effort, is an effective tool to substantially reduce the chances of fraudulent credit applications, greatly reducing a significant concern. While it won’t stop other fraudulent activities, like filing a false tax return, we believe the most frequent tactics for online financial fraud could be stopped in its tracks with the credit freeze.