Credit freeze may help you if you don’t apply for credit too often

Identity theft is a growing problem, and no one really knows what to do to prevent it. If a criminal can obtain your Social Security number, he or she can apply for credit or loans in your name and can take out credit cards and spend like crazy. And you get the bill. The problem is increasing to the point where several states have enacted laws allowing consumers to “freeze” their credit reports so that only they can have access to them. So far, this has met with limited success and is a bit of a nuisance for consumers.

In the handful of states that permit credit report freezing, a consumer must pay a fee (usually $10-15) to each of the three main credit bureaus. In most states, this process must be done by mail, rather than over the phone or online. The consumer is given a password that he or she can use to unlock the access to their credit report. While the report is locked or “frozen”, no lender has access to the consumer’s credit. That means that any and all applications for credit or loans will be denied due to an inability on the part of the lender to determine if the consumer is worthy of a loan.

This is a great idea in theory, but difficult in execution. Should a consumer with a locked report want to take out a loan, he or she must authorize the unlocking ahead of time. The amount of time necessary to unlock a credit report varies, but usually takes days, rather than hours. This can be quite an inconvenience for the consumer who realizes that he or she needs a loan in a hurry. Some business that thrive on impulse buying decisions, such as auto dealerships, are not too excited about the ability to freeze credit. A customer who decides on the spur of the moment to buy a car may change his mind if he discovers that he can’t take out a loan for a few days due to a locked credit report. For auto dealerships, this may translate to lost sales.

Adding to the problem is that in nearly all states that permit locking or freezing, only those consumers who have already been victimized by identity theft may freeze their credit. California is currently the sole exception. That means that the vast majority of consumers who live in states that permit the practice are prohibited from using a freeze as a preventative measure. You may only use it after the fact, which is, frankly, too late for most people. The ability to prevent identity theft is hardly reassuring to someone who has just had theirs stolen.

It’s a start, but so far, the freezing of credit reports represents more bark than bite when it comes to preventing crime. In time, these things will be worked out by the various state legislatures or Congress, but in the meantime, the identity thieves will still be able to steal.

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