In light of recent data breaches and the rise of identity theft, some consumers are turning to a prevention tactic known as a credit freeze.
Kyle Leemon is a home loan specialist at the Okemos office of national mortgage lender Churchill Mortgage. He also has clients in Grand Rapids.
Leemon said he has seen an increase in the number of clients in the past year who have come to him with concerns their credit might be at risk and want to explore the option of a credit freeze.
A credit freeze allows individuals to seal their credit reports with all three reporting bureaus — Equifax, TransUnion and Experian — so thieves cannot obtain new lines of credit, even if they obtain a consumer’s personal information.
The technique is available to past identity theft victims for free and to nonvictims for a fee of $10 per agency.
After freezing their credit, individuals will receive a personal identification number (PIN) that only they know and can use to temporarily thaw their credit when legitimate applications for credit and services — such as mortgage applications — need to be processed.
Leemon said a credit freeze has no impact on existing lines of credit.
“You can still build your credit, just like normal,” he said. “Freezing your credit does not affect your credit score. All it does is it hides that activity from a potential lender or identity thief.”
He said although the tactic is effective, it might not be a good idea for certain individuals.
“It costs $30 to lock those, total, with each credit reporting agency, and then $30 to unlock,” Leemon said. “Each time you want to apply for credit, get an apartment, or some employers also want to run credit, it will need to be unlocked.
“Because those fees are going to add up really fast, if you’re a person who wants to open credit lines regularly throughout the year, or move, I wouldn’t recommend it. There are other things you can do, like fraud alerts.”
A fraud alert can be activated by calling one of the credit reporting agencies.
“As soon as you file it with one, they’re required to share that with the other two credit reporting agencies,” Leemon said.
A temporary alert can be placed for 90 days; a long-term alert is good for up to seven years.
“It will notify you anytime someone is trying to open an application in your name,” Leemon said. “Whatever lender it is, they will have to contact you to verify. The other benefit is it’s free.”
Leemon said a credit freeze might be more sensible for an older person who is more settled in life.
“It would be a good idea if you don’t intend on opening credit all that often, if you’re not moving around to different employers, if you’re not a renter who’s constantly moving and if you’re just cautious about any portion of your identity being out there,” he said.
When it comes to the mortgage origination process, Leemon said clients should first decide on a lender, then either thaw their credit before starting a mortgage application or issue their PIN to the lender so they can initiate a temporary thaw.
“When a potential buyer is in the process of going through the pre-approval process, they would want to notify us before they give us permission to run a credit report,” he said. “At that time, I would instruct them to have their credit unfrozen (or use the PIN).”
Contacting the three credit reporting bureaus to have a line of credit unfrozen would take about a day, whereas using the PIN would be instantaneous.
If clients don’t remember to unfreeze their credit or share the PIN before Leemon runs a credit check, he said he will see an error message in the system.
“We run (credit checks) with Credit Plus. Where they would normally say Experian, TransUnion and Equifax, it will say ‘error’ or ‘blank,’” he said.
The same thing would happen in the next step, applying for financing.
“When we run a file through an approval system like Fannie Mae, it will come back with an error saying there’s something wrong with the credit report. It’s a code that’s generic to several issues. It could be a fraud alert or a credit freeze,” Leemon said.
Leemon said although he has more clients mentioning credit freezes, the number of them who follow through is low — about 1 in 20 individuals.
He said in a digital economy, everyone should be aware of what is happening with their credit on a regular basis.
“I would stress everybody should take the steps necessary to make sure their identity hasn’t been stolen,” Leemon said. “Things like checking your bank account regularly (and) filing your tax returns right away instead of waiting until April 15. One of the things we would see in accounting is someone would file a tax return in someone else’s name and receive a cash card. (The IRS will) send the cards out with no verification required, because if someone has your date of birth, name and address, they can file in your name.
“Also, just be aware of what’s going on. If you’re getting unusual mail, like credit card applications or applications for debt, car loan applications, if you’re getting phone calls (about) consolidating student loans, that could be an indicator your identity has been stolen.”