After all the data breaches in the last couple years, consumers have been feeling vulnerable to identity theft. Many have utilized a Credit Freeze to prevent would be thieves from opening new accounts in their name. However, what happens when you need to open a new account? Here’s what you need to know.
A credit freeze blocks anyone—including lenders and employers—from accessing your credit report. Requests for a credit freeze must be submitted by mail, online or over the phone to the three major credit bureaus individually (Equifax, TransUnion and Experian). You’ll need to provide your name, address, date of birth and Social Security number. The fees vary by state but run from free to $10 each time you place or lift the freeze, and payments can be made using a personal check, money order or credit card. (Fees may be waived for victims of identity theft.) Once placed, a credit freeze stays on your credit report until you lift or remove it. But remember: It can affect your ability to get a new cellphone, apply for a store credit card or even get a job. And existing creditors or debt collectors acting on their behalf will still have access.
“Freezing your credit can prevent others from opening new lines of credit in your name, but it also prevents you from opening an account yourself,” says Sam Mischner, chief sales officer and head of mortgage at Charlotte, N.C.-based LendingTree. “If you’ve instituted a freeze on your credit but now want to apply for a loan, you will need to take the extra step of allowing the lender access to your credit. You will have to contact each credit bureau to temporarily lift the freeze.”
For borrowers applying for a mortgage, that freeze will probably only have to be lifted once, because the credit report would be good for the typical 30- to 45-day period from contract to closing, says Josh Moffitt, founder and president of Silverton Mortgage Specialists, a direct-mortgage lender in Atlanta. But there are certain situations where another report needs to be pulled by the lender nearer to the closing. In that case, the borrower may have to lift the freeze—and pay for it—multiple times.
In addition, borrowers might run into problems in competitive housing markets where they need to close quickly. In those instances, it might be tricky to unfreeze the credit in time for the lender to pull credit reports and complete the underwriting and pre-closing process.
Here are a few considerations if you’re applying for a mortgage with frozen credit.
While freezing your credit protects you from the time the freeze becomes effective, it does nothing to correct existing credit issues. Get a copy of your credit report from each of the three reporting agencies, check them carefully and correct any errors before you apply for a mortgage.
While a credit freeze “locks down” your credit, a fraud alert still allows creditors to pull your credit report as long as they verify your identity first, according to the Federal Trade Commission. For example, a business may call you to verify that you are the person requesting new credit. However, while fraud alerts may make it more difficult for others to open new credit accounts in your name, they may not prevent misuse of your existing accounts. Placing a fraud alert is easier than with a freeze. You need only to contact one of the reporting agencies, which in turn is required to notify the others. A fraud alert is free.
Know how the freeze works
Understand the logistics of lifting the freeze—and make sure you allow enough time for the lender to pull credit reports. Consumers who deal directly with the three credit-reporting agencies are given a personal identification number to provide, either by phone, online or mail, every time they want to lift or remove the freeze, according to David M. Blumberg, a spokesman for TransUnion. Alternatively, consumers can lock or unlock their credit using a third-party service like TransUnion’s TrueIdentity, which is available online or in an app.
Here is contact information for fraud and identity-theft issues.