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Chill that credit report

By Janna Herron · Bankrate.com
Friday, January 27, 2012
Posted: 5 pm ET

State senators in Maryland are considering a proposal that will allow parents or guardians to freeze their child's credit report. The measure highlights an interesting and effective method to protect your identity.

A credit or security freeze keeps new creditors from pulling your credit report or reporting information about you to the credit bureaus. However, creditors that already share a relationship with you can access your report and continue reporting to the bureaus.

This is how it thwarts identity theft.

Say a nefarious individual accesses enough personal information about you to try to apply for a credit card in your name.  This bad person visits Random Bank (with which you have no previous relationship) and fills out a credit card application.

When Random Bank tries to pull your credit report and score during the application process, it can't because of the credit freeze. The fraudster is denied a credit card, and your finances remain safe.

"It stops identity theft dead in its tracks," says John Ulzheimer, president of consumer education at SmartCredit.com.

What legislators in Maryland are hoping to accomplish is to give parents and guardians a way to preemptively ward off identity thieves targeting their children. (Never mind that many perpetrators of child identity theft are the parents themselves.)

All the parents/guardians need to do is create a basic credit report with Junior's name, address, date of birth and Social Security number and freeze it until Junior becomes a legal adult.

"I like it," Ulzheimer says. "So when the child turns 18, he or she is not starting from a negative. Their credit report isn't littered with a bunch of fraudulent collections."

About 140,000 children are victims of identity fraud every year, according to a study last year from consumer risk management company ID Analytics. While that is a small slice of the identity theft pie, the consequences can be much worse for younger victims because the crime typically goes unnoticed for years. By the time it's discovered, the child's credit has been tarnished.

Now, you may be asking: Why doesn't everyone freeze their report? Two reasons. Cost and inconvenience. There's a fee, which varies by state, to freeze and another one to unfreeze your report. The fees are charged separately by each major credit bureau -- Equifax, Experian and TransUnion -- says Ulzheimer.

So, if you want to refinance your mortgage with a new lender while your credit report is on ice, you will need to contact all three credit reporting agencies and pay a fee to unfreeze your reports. When the process is done, you have to call the bureaus back and pay another fee to freeze your report again.

(In some states, individuals who have been victims of identity fraud are able to get credit freezes for free, Ulzheimer notes.)

If the expense is too much and the process too cumbersome, keep tabs on your financial identity by pulling your credit report for free every 12 months from each of the bureau at AnnualCreditReport.com. Check for mistakes or possible fraudulent accounts.

Have you used a credit freeze?

Follow me on Twitter: @JannaHerron.

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1 Comment
Alexander
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