Protect credit by freezing it

SINCE THE major data breach at Target, many readers have asked how to best protect their credit.

"My wife and I are vigilant and we replaced our debit cards because of Target," one reader wrote. "Our credit has been 'frozen' at the three credit agencies for years and we view the reports annually. Do you consider 'frozen' at the agencies as ample protection?"

It's likely you've heard that if you're a victim of identity theft or you want to protect your files from fraud because you suspect you are vulnerable, you should put a fraud alert on your credit files at the major credit-reporting agencies - TransUnion, Experian and Equifax. But you may not be familiar with a security freeze, a much stronger option to help protect yourself and prevent identity theft.

With a fraud alert, a business must verify your identity before it issues credit. The alert is supposed to let lenders and others know that they need to give closer scrutiny to any request under your name because something might be amiss.

You can have an initial fraud alert placed on your file for at least 90 days. For a seven-year alert, you must submit a copy of a theft report filed with a law-enforcement agency to get the extended status. Both types of fraud alerts are free.

Placing a fraud alert does not affect your credit score or your credit accounts. You only need to make one telephone call because that agency will inform the other two. All three bureaus have identity-theft information on their websites: www.transunion.com, www.equifax.com and www.experian.com.

But here's something to keep in mind: A fraud alert isn't foolproof. It can be overlooked, allowing criminals to open accounts in your name.

"A lot of credit decisions are done computer-to-computer, so an alert might be missed," says Evan Hendricks, publisher and founder of the newsletter Privacy Times and author of Credit Scores and Credit Reports: How the System Really Works, What You Can Do.

However, a security freeze, also known as a credit freeze, blocks access to your credit report and credit score. It prevents the credit bureaus from releasing any information in your file without your permission.

You're probably thinking: This is great. Where do I sign up?

Although a security freeze is something you should definitely consider if you're an identity-theft victim, you also need to take into account the cost and inconvenience.

The fees to place and lift a freeze vary by state. You don't have to be a victim of identity theft to put a freeze on your credit reports. In many states, it costs $10 to place a freeze on your report. To lift it temporarily, you'll pay anywhere from $2 to $10. But if you've been a victim, there is no charge for the freeze.

You'll find state-specific details about fees by going to any of the three credit-bureau sites and searching for either "credit freeze" or "security freeze." You need to check with each bureau for its requirements for placing, lifting or removing a security freeze. You'll also have to verify your identity each time so that the bureaus can make sure it's you asking for the freeze.

The freeze stays in place until you ask for it to be removed. And you might want it removed more frequently than you think. Credit information is used for a lot of things. You may need the freeze lifted to open a new credit account, rent an apartment, buy a car, sign up for new cellphone service, refinance your mortgage or give access to an employer or any other business that requires a look at your report. It also can take several days to lift the freeze.

Even a credit freeze isn't guaranteed to stop identity theft. As the Federal Trade Commission points out, a credit freeze may not stop misuse of your existing accounts or some other types of identity theft. Criminals, like those in the Target case, can just steal the information for existing accounts and misuse it before you find out. Also, companies with which you do business would still have access to your credit report for some purposes.

If you're worried about data breaches, a security freeze may give you some comfort, Hendricks said.

"The situation with Target is we know the breach was by bad guys," he said. "So if you aren't going to be applying for credit anytime soon, consider getting a security freeze."