Credit freezes help prevent thieves from opening new lines of credit in another person's name, but most states allow credit bureaus to charge a fee for the service. That will change this autumn.The Economic Growth, Regulatory Relief and Consumer Protection Act, signed on May 24, will let Americans freeze their credit files for free. "It's a small step in the right direction," says Jeff Taylor, co-founder and managing director of Digital Risk, a technology services company that works with the mortgage industry. Eliminating fees will make this security tool more accessible, but consumers also need to be aware that a credit freeze is not a cure-all for identity theft.Here's what you need to know about credit freezes, the new law and whether a freeze is right for you.[See: 10 Ways to Protect Yourself From Online Fraud.]How a credit freeze works. The three major credit bureaus – Equifax, Experian and TransUnion – are required by state laws to provide a method to freeze credit. Also known as a security freeze, a credit freeze restricts access to a credit file.That means a new creditor can't retrieve or review your credit report if you've frozen it. In theory, this should prevent any new lines of credit from being opened in your name. Those who have been victims of identity theft or who know their personal information was accessed in a security breach are often encouraged to use a credit freeze to ensure their data isn't used to open new accounts. Anyone who freezes their credit file will have to request the credit bureaus unfreeze it if they wish to apply for a loan or other credit line themselves.In many states, the credit bureaus are allowed to charge a fee to freeze and unfreeze a credit report. While the fee is often waived for victims of identity theft, others may be required to pay anywhere from $3 to $10, depending on what their state's law allows. Consumers must initiate a freeze with each credit bureau individually, which means the total cost in some states could be as high as $30 each time they add or lift a credit freeze."It's a nominal fee," says Victor Powell, a certified financial planner with financial firm Tanglewood Total Wealth Management in Houston, "but it can definitely add up, especially if you have a number of people in the house."What you need to know about the credit freeze changes. The need to pay for credit freezes will end this year. Plus, the new legislation will make changes to banking laws regarding mortgages and credit, among other things. It also requires credit bureaus to provide free credit freezes to consumers. The provision will go into effect 120 days after the bill's signing, which will be likely be in mid-September."This new law … will help consumers by improving the economy and assisting in the fight against identity theft," says Francis Creighton, president and CEO of the Consumer Data Industry Association, a trade group that includes 100 corporate members including credit bureaus and mortgage reporting companies.[Read: How Consumers Can Protect Their Online Privacy Right Now.]In addition to providing free credit freezes for adults, the law allows parents to freeze the credit of their minor children as well. Doing so prevents someone from opening an account using a child's name and Social Security number without the parent's permission or knowledge. Currently, credit freezes can be requested either over the phone or online, and there is no indication that will change after the provisions of the new law go into effect.How the new law will impact consumers. Credit freezes can be a useful tool, but consumers need to be aware of their limitations. For instance, a freeze should eliminate the possibility of a scammer opening a new line of credit, but it won't prevent someone who has access to an existing account from using it. A credit freeze also won't prevent tax identity theft in which someone files a fraudulent tax return in another person's name.Creighton says consumers can take additional steps beyond a credit freeze to protect themselves. "People should make sure they are checking their bills for erroneous activity," he says. "They should check their credit reports every year to make sure there are no errors."Another thing to consider before placing a credit freeze on an account is whether you'll be making a major purchase in the near future. This may be particularly important for those in the market for a new home."We have the tightest [housing] inventory we've had in a couple decades," Taylor says. Homebuyers who need to quickly get preapproval for a property in a competitive market could find the process of unfreezing credit to be cumbersome. "It could slow down the speed at which you can proceed." Each credit bureau provides a phone number as well as a web form that can be used to make a freeze request. Consumers who want all three bureaus to freeze their file must contact all three companies separately. Once their identifying information is verified and the freeze is enacted, a PIN number will be issued. Since each credit bureau issues its own PIN, consumers may have three numbers to store. To unfreeze a credit file, the correct PIN must be provided to the issuing bureau. If that number has been lost, the process of unfreezing a report can be further delayed. "It's not that big of a deal," Powell says, "but it's one more thing to keep track of."Remember: A lock is not a freeze. Credit bureaus like Equifax offer services that lock an account, and these locks may be more quickly removed than a freeze. "A lock and a freeze have the same impact on your Equifax credit report, but they aren't the same thing," says Jerry Grasso, a spokesperson for Equifax Global Consumer Solutions. Locks don't require a PIN and typically may be managed via a mobile app, but they also aren't regulated by the government in the same way as freezes are monitored.Locks are offered directly from credit bureaus to consumers and may be bundled with credit monitoring and fraud alert services. Currently, the TrueIdentity service from TransUnion and Lock & Alert service from Equifax are offered free of charge. However, there is no law requiring they remain free, as is the case with credit freezes. The third major credit bureau, Experian, has a CreditWorks program that includes a lock and $1 million of identity theft insurance for $4.99 for the first month and $24.99 for each following month.[See: 9 Financial Tools You Should Be Using.]Despite the convenience of lock programs, Powell still says people can't go wrong with a credit freeze. They're available at no cost starting this fall and with government regulations behind them, "it's the best bang for your buck," he says..
