What’s The Difference Between a Fraud Alert and a Credit Freeze?

Last week I profiled both the credit freeze and the fraud alert.  This week, I’ll compare their pros and cons to each other…

A fraud alert and a credit freeze can be placed on your credit reports at the three national credit reporting agencies – Equifax, Experian and TransUnion.  These are limited to the data on your credit reports and to those accessing your credit report; it does not include approval for non-credit related transactions such as counterfeit checks.

Fraud Alert

A fraud alert informs those companies reviewing your credit report to contact you to verify that you authorized the activity.  Two types are initial and extended fraud alerts and both are free. Initial is for 90 days and is placed when you suspect you have been a victim of ID fraud and no proof is needed.  Extended is for 7 years, must be a victim of ID theft and have a report from law enforcement.

The advantages are it is free, you contact only one credit reporting agency which contacts the other two and it alerts those viewing your credit file to contact you to verify the transaction. The disadvantages are they can still view your credit and grant credit; company has to notice the alert and comply; and it can delay your ability to get credit.

Credit Freeze

A credit freeze prevents new creditors from reviewing your credit report without your permission. You receive a PIN to unfreeze it when you want to apply for credit. New credit cannot be established in your name without your permission. You contact each credit reporting agency to set it up, pay a fee from $3 to $10 to set up and pay the same to unfreeze it. If you have been a victim of ID theft, it is free.

The advantages are ID thieves cannot open new accounts in your name, only you can remove the credit freeze and it remains until you cancel it. The disadvantages are having to unfreeze your account to get credit; determining how long to unfreeze it; doesn’t stop ID thieves from stealing your current accounts; and cannot prevent current creditors from reviewing your report along with collection agencies, government, and law enforcement.

Until the credit freeze came into effect in late 2007, the fraud alert was the only option. You now have two, but you can decide which best serves your purposes. If you don’t apply for credit often, the freeze is the best choice.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.  Follow him on Twitter here.

Categorised in: Credit Monitoring, Credit Report, Credit Score, Identity Theft

This post was written by John Ulzheimer