Equifax leak: experts recommend freezing your credit

If your personal data is no longer secure because of the recent Equifax hack, many personal finance experts recommend that you protect yourself with credit monitoring and even freezing your credit.That can prevent people from opening up accounts in your name, but what if you’re shopping for a mortgage?

What exactly is “freezing” your credit?

If you have a problem managing debt, credit counselors may advise you to actually put your credit cards under water and then in the freezer, encasing them in ice to prevent impulse buys.

That is not “freezing” your credit.

Freezing credit, also known as placing a security freeze, locks up your credit report. Once you implement a credit freeze, lenders and other companies cannot see it. This keeps identity thieves from using your information to open up new accounts in your name.

It typically costs about $30 to set up a freeze. However, Equifax claims that enrolling in the free credit monitoring service they are providing victims of its data breach allows you to freeze your credit for free if you want.

It’s important to understand that freezing your credit does NOT prevent identity theft — if someone has information about your existing credit cards or bank accounts, it won’t prevent them from accessing them.

Upside of credit freezing

The main advantage of a credit freeze is that it’s pretty much bullet-proof. If creditors don’t have access to your credit information, they are unlikely to grant you (or anyone pretending to be you) credit.

It’s also often cheaper than credit monitoring services, which require ongoing payments. (However, Equifax is providing free credit monitoring in the wake of its breach for one year to potential victims.)

Freezing can make mortgage application a challenge

However, this bullet-proofing can make it difficult if you are seeking credit. If you want Loan Estimates from mortgage lenders, which tell you what rate and terms a lender is willing to offer you, they need to check your credit.

When you apply for your home loan, underwriters will pull your credit.

And right before closing, most lenders will do a final credit check as part of their quality control.

“Unfreezing” credit for loan applications

You must unfreeze your credit personally to allow access to your report. To do this, you use the PIN number that each credit bureau gives you.

For mortgage applications, which require credit scores from multiple bureaus (Equifax, TransUnion and Experian), you’ll need to do this two or three times. A credit reporting company must lift a freeze no later than three business days after getting your request. The cost to lift a freeze varies by state.

If you have to freeze and unfreeze your report several times while your loan processes, it may add a week or more to your processing time. That’s something to keep in mind when locking your interest rate or deciding how long an escrow you want.

Or, you can request the freeze to be lifted once during your mortgage process, and then replaced once your loan closes. This may leave you vulnerable to fraud during that time.

Alternatives to credit freezing

Credit freezing is not the only solution to compromised credit files. You can sign up for credit monitoring, which alerts you if someone executes a suspicious transaction using your Social Security number.

Credit monitoring lets you see if someone uses your existing credit accounts, and alerts you so you can have the transactions reversed.

However, the ongoing cost of such measures may be a bit much over time, and it just provides information, not prevention.

You can request that a fraud alert be placed on your credit report with all three bureaus. It’s free, and it may prevent fraud in the first place, not just alert you after it takes place.

There are some advantages to doing this.

A fraud alert allows mortgage lenders to get a copy of your credit report as long as they verify your identity. Like credit freezes, fraud alerts may stop someone from opening new credit accounts in your name, but they don’t prevent the raiding of your existing accounts.

You still need to monitor all bank, credit card and insurance statements for fraudulent transactions.

There are three types:

  • Initial Fraud Alert If you’re not already an identity theft victim, this fraud alert protects your credit from unverified access for at least 90 days.
  • Extended Fraud Alert If you are a victim of identity theft, an extended fraud alert protects your credit for seven years.
  • Active Duty Military Alert For those in the military who want to protect their credit while deployed, this fraud alert lasts for one year.

To place a fraud alert on your credit reports, contact one of the “Big Three” credit reporting companies. You’ll have to supply proof of your identity. Whichever company you call must tell the other credit reporting companies. Then, they also place an alert on your report.

What are today’s mortgage rates?

Taking longer to close could cause you to pay slightly more for your mortgage, but current mortgage rates are still extremely affordable. And you can do even better if you shop aggressively by comparing quotes from several companies.