Credit freeze vs. Fraud alert vs. Credit monitoring: What’s the difference?

I was at the car dealership about to buy a car when my cell phone rang. The salesperson told me to answer. I did, and the credit manager was on the other end of the call. 

Despite the fact that I had already shared my driver’s license with the salesperson, he was taking an additional step to verify my identity. I had been a victim of credit fraud a few months before, and had placed a credit alert on my credit reports.  The credit manager was calling the phone number listed on my credit report to make sure I wasn’t a fraudster trying to impersonate me.

Whether you’ve been a victim of identity theft at some point, or you keep hearing about data breaches and you want to protect your credit, you may have thought about freezing your credit. A credit freeze is one of several options for protecting your information from identity thieves.

Here are three of the most popular ways to protect your credit data, and how they are different:

• Credit monitoring
• Fraud alert
• Credit freeze

It’s worth noting that none of these options impact your credit scores, so just like checking your free credit reports, so feel free to choose the one that is right for you.

Credit monitoring

Credit monitoring involves signing up for a service that allows you to review your credit reports and/or credit scores from one or more of the major credit reporting agencies. These services, which may be free or fee-based, will provide you with a summary of your credit report or your full credit report, and/or a credit score based on that information.

The advantage of using credit monitoring is that it’s quick and easy. It’s also free if you find the right source, like Nav. It also helps you stay on top of your credit, which is particularly useful for those who are building or rebuilding credit, or planning on a major credit transaction in the future such as getting a mortgage. 

The downside? It doesn’t stop someone from using your information to apply for credit in your name. If they do, you’ll need to report that identity theft as soon as possible to avoid further damage.

An important tip: when it comes to monitoring your credit, make sure you are tracking your information with all three major consumer credit reporting agencies: Equifax, Experian and TransUnion. They don’t share information with each other except as required by law, and if there’s a problem with one and you’re not monitoring it, you may not find out right away.

For business owners, credit monitoring is often the only option available for their business credit information. Currently, commercial credit reports can’t be frozen and only Experian offers an option for placing a formal fraud alert on a business credit report. For that reason, small business owners should be checking and monitoring their business credit with all three major commercial credit reporting agencies: Dun & Bradstreet, Equifax and Experian.

Fraud alert

When you place an initial fraud alert, companies that request your credit report will be alerted to the fact that you have identified possible fraudulent activity and will be told to contact you to verify your identity before extending credit.

There are three types of fraud alerts:

• A 1-year fraud alert
• A 1-year active duty fraud alert (for active duty service members)
• A 7-year extended fraud alert

To file a seven-year fraud alert, you’ll need to supply the credit reporting agency with a valid ID fraud report you’ve filed with local, state or federal authorities.

It’s worth noting that if you place a fraud alert with one consumer credit reporting agency, that bureau must share that information with the other two major consumer reporting agencies. That means you don’t have to place a fraud alert with all three; the bureaus should take care of that for you.

Credit freeze

A credit freeze “locks” your credit report so that, generally, companies you don’t already have a relationship with can’t access your credit report information. Note your credit reports can still be accessed by companies with which you have an existing relationship, for you to monitor your own credit through a credit monitoring service, for background checks, and in a few other limited situations.

Thanks to a new federal law that went into effect in September 2018, you can place a fraud alert on your consumer credit reports for free. It’s also free to unfreeze your credit.

In addition, parents of minor children can create and freeze a file on their children. If you are a guardian of an adult who is incapacitated, you should be able to freeze their credit reports as well.

Here’s how to contact the three major credit bureaus to place a credit freeze:

Experian

Equifax

TransUnion

You must place a credit freeze with each individual credit reporting agency. Unlike a fraud alert, a credit freeze does not extend to the other major credit bureaus.

While a credit freeze provides the most protection, it can also be something of a hassle at times. If you fill out a credit application, or even try to get a new cell phone or internet service, you’ll have to lift the freeze. If you can do that online, it should be fairly straightforward and quick, but if you can’t, the transaction you’re trying to complete may be held up while you try to thaw your file.

Must do

If you do nothing else, monitor your credit reports with all three major credit reporting agencies. That will at least alert you to changes that could indicate fraud, such as an inquiry from a financial institution where you’ve never applied for credit, or a change of address when you didn’t move. And if you’re a business owner, be sure to also monitor your business credit reports, ideally with all three major business credit bureaus.  Then, if you are a victim of fraud or you have reason to believe you need additional protection, you can consider a fraud alert or credit freeze.

Pros and cons of freezing 

Freezing your credit or placing a credit lock is a smart way to get peace of mind, but it has some downsides, too.

Victim of identity theft? Follow these steps

Identity theft can happen in a number of ways. Whether someone has simply stolen your wallet or gone as far as to use your social security number to open a new credit card account, you’ll want to take steps to protect your identity and your credit from any further damage. Follow these steps if someone has stolen your identity.

1. Contact any one of the three credit reporting agencies’ fraud departments to place a fraud alert on your credit file. It doesn’t matter which one you call — they will alert the other two. The fraud alert will last 90 days. During that time, if any new accounts are opened under your name, the credit bureaus will contact you to verify that it’s really you. You may consider an extended fraud alert, which lasts seven years.
2. Report the identity theft to the Federal Trade Commission (FTC). You can visit identitytheft.gov to report the theft and get a recovery plan, including an identity theft report that you can use to verify the theft with the credit bureaus. 
3. Get in touch with any company where you have existing accounts. This can include banks, lenders, credit card issuers, and insurance agencies to alert them to the possibility of fraud. You should change passwords or personal identification numbers (PINs) if your bank account or other information has been part of a security breach and work to remove fraudulent credit card activity. 
4. Monitor your credit. You are entitled to a free copies of your credit reports from all major bureaus after being a victim of identity theft, but you can also monitor it through services like Nav. Make sure to keep an eye out for any changes in information, such as contact information changes, a credit check from a company you haven’t used, or new accounts that you haven’t opened.
5. File a police report. Even if you don’t know who stole your information, the credit bureaus will need the police report to investigate any fraudulent activity that your report.
6. Report fraudulent activity to the credit bureaus. They will help you remove the activity from your credit history.  

If you do nothing else, monitor your credit reports with all three major credit reporting agencies, using the free annual credit report or any credit reporting service. That will at least alert you to suspicious activity that could indicate fraud, a new line of credit appearing on your credit reports, or a change of address when you didn’t move. 

And if you’re a business owner, be sure to also monitor your business credit reports, ideally with all three major business credit bureaus.  Then, if you are a victim of fraud or you have reason to believe you need additional protection, you can consider a fraud alert or credit freeze.

Will a Credit Freeze or Fraud Alert Hurt My Credit Score?

No, placing a security freeze or fraud alert on your credit activity will not hurt your credit score. But having fraudulent activity on your report may, so it’s a good idea to use these tools if you have any concern over fraud. 

How Nav can help you stay on top of your credit activity

Nav offers business credit monitoring to help you watch your credit activity. We also give you access to personal credit reports and send you alerts when there’s new activity. This can help you make sure you’re not a victim of ID theft, whether it’s for your business or your personal finance activities. 

Nav makes it easy to check, manage and monitor your business and personal credit in one dashboard. Then compare the best small business loans and business credit cards for your needs. 

Get started now.

Frequently asked questions

What’s the difference between a freeze and an alert? 

A credit freeze stops companies from accessing your credit report without your permission. Think of it like putting your credit on hold – (almost) no one can view it until you lift the freeze.

A fraud alert, on the other hand, lets companies view your credit report when considering an application for credit or other benefits, but it encourages them to verify your identity first. With a fraud alert, you can still apply for credit, but companies must take extra steps to confirm it’s really you.

Is locking your credit card the same as freezing? 

No. A credit card lock only stops new purchases on that specific card. A credit freeze is much broader – it prevents anyone from accessing your credit report to open new accounts of all types. While a card lock helps prevent unauthorized purchases, a credit freeze helps prevent someone from opening entirely new accounts in your name.

Which is better, a credit lock or freeze? 

Both block access to your credit report, but a freeze is regulated by federal law. Credit freezes are also free by law, while credit locks may come with monthly fees. The main advantage of a lock is that it’s usually faster to remove than a freeze. (Note here we’re referring to freezing or locking your credit reports rather than an individual credit card.)

What happens when you put a freeze on your credit report?

When you freeze your credit report, most companies can’t view your credit information. This means no one can open new credit cards, take out loans, or start new services that require a credit check in your name. 

Companies you already work with can still access your report, and you can still monitor your own credit. You’ll need to temporarily lift the freeze when you want to apply for new credit.

What are the negatives to freezing your credit? 

The main drawback of a credit freeze is that you must plan ahead. You’ll need to lift the freeze before applying for new credit cards, loans, cell phone plans, or even some jobs that require credit checks. It may also affect your ability to use certain credit monitoring services.

While lifting a freeze online usually takes minutes, doing it by phone can take longer. You also need to freeze your credit separately with all three major credit bureaus – Equifax, Experian, and TransUnion. However, these inconveniences are usually worth the strong protection a freeze provides.