Credit Freeze vs Fraud Alert: What’s the Difference?

If you’re worried about identity theft, you’re in good company. More than ⅔ of U.S. adults responding to a 2018 survey by Harris Poll and NerdWallet said they were increasingly concerned about the security of their financial information online. According to the same survey, fewer than half believe that credit reporting agencies or the U.S. government are doing enough to protect their financial information, and just 51% said banks were doing enough. Most of those consumers felt they were unprepared to manage an event like a data breach. Still, the same report revealed that only about 10% had taken protective action such as placing a freeze on their credit reports.

Reports of identity theft are relatively low in Alabama and Mississippi: the two states are ranked 32nd and 37th respectively in terms of identity theft complaints per 100,000 residents. Tennessee residents are slightly more at risk, but still fall at about the middle of the country. Still, data shows that in a given year, the Federal Trade Commission (FTC) receives more than 2,000 identity theft complaints from Mississippi residents, more than 3,500 from Alabama residents, and more than 5,500 from Tennessee residents.

The inaction of consumers who are concerned about the security of their financial data is surprising, but may be due in part to confusion. U.S. consumers are bombarded with offers and advertising about credit monitoring and related services, many of which require payment. The two protections provided at no cost--the credit freeze and the fraud alert--may get lost in the shuffle.

Identity Theft Protection Options: Credit Freeze vs Fraud Alert

What is a Credit Freeze? 

A credit freeze is a bit like a padlock you place on your credit report. Though a credit freeze doesn’t technically prevent someone else from opening credit accounts in your name, it significantly minimizes the risk. The standard process for most credit applications involves the potential creditor pulling your credit report from one of the three major credit reporting agencies. And, most won’t extend credit without reviewing that credit history.

The credit freeze is designed to interrupt that process by instructing the credit reporting agency to refuse to provide the report to a prospective new creditor. 

Although a credit freeze can help protect against identity theft, it can be an inconvenience if you’re applying for credit yourself. If you’re planning to apply for credit and know that a potential creditor will be requesting your credit report, you’ll have to lift the freeze in advance and then put it back in place when your application process is complete. Typically, the switch takes place quickly, and the inconvenience is relatively minor.

Anyone can request a credit freeze at no charge by contacting each of the three major credit bureaus directly. TransUnion, Experian and Equifax all provide online instructions and multiple ways to place or lift a credit freeze. 

What is a Fraud Alert?

A fraud alert is different from a credit freeze in a few important ways. 

First, fraud alerts aren’t available to everyone--they’re intended to provide additional protection to people whose financial information has been compromised, or who have reason to believe it has. 

Second, fraud alerts are time-limited. An initial fraud alert placed when you believe that you have been or are about to become the victim of identity theft lasts for one year. An extended fraud alert, which requires additional documentation, lasts for seven years. Either of these alerts can be removed sooner at the victim’s request.

Third, while you must contact each credit reporting agency individually to place a freeze on your credit report, setting a fraud alert with one credit bureau puts the process in motion--whichever one of the “big three” you contact will notify the others.

Finally, a fraud alert operates differently than a credit freeze. While a credit freeze prevents potential creditors from accessing your credit report, a fraud alert advises them that your information may have been compromised and instructs them to call you before opening new accounts. 

How Effective are Fraud Alerts and Credit Freezes?

Credit freezes and fraud alerts each add a layer of protection. However, neither provides full protection against identity theft. In fact, there is no 100% effective means of avoiding identity theft. 

For example, an identity thief might work around a credit freeze by applying to a high-risk creditor that relies on specialized reporting rather than one of the three major credit reporting agencies or uses alternative means of determining creditworthiness. Similarly, while a fraud alert instructs potential creditors to call before issuing new credit, the creditor could overlook that instruction or cut corners in the process. And, of course, not all identity theft involves the opening of credit accounts. Neither a credit freeze nor a fraud alert will protect against unauthorized use of existing credit accounts, fraudulent bank transactions, or other types of identity theft that don’t involve credit applications.

Still, each of these protections can significantly limit the risk of identity theft involving the opening of fraudulent accounts in your name, which represents a significant risk. In 2018, the Federal Trade Commission (FTC) reported that new credit card account fraud was up 24%. So, while it is important to understand the limitations of these tools and take other protective measures, you can substantially reduce the risks of certain types of identity theft with a credit freeze or a fraud alert. 

You can schedule a free consultation with one of the knowledgeable bankruptcy attorneys at Bond & Botes by calling 877-581-3396 or filling out our contact form to discuss which option in the decision-making process between credit freeze vs fraud alert may be the best one for you. We have offices in Alabama and Mississippi.