Credit Freeze vs. Fraud Alert vs. Credit Monitoring: What’s the Difference?

Credit Freeze vs. Fraud Alert vs. Credit Monitoring: What’s the Difference?

Credit Freeze vs. Fraud Alert vs. Credit Monitoring: What’s the Difference?

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 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 there’s no formal procedure for placing a 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 service members of the military on active duty)
  • 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 lift a freeze.

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 apply for credit, 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 company 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 companies, 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 copy of your credit report after being a victim of identity theft, but you can also monitor it through free 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 changes that could indicate fraud, such as an inquiry from a company 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.

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. 

Knowing your business credit scores is an important part of understanding your business’s overall financial health, and not just when you’re looking out for fraud. Nav makes it easy to compare the best small business loans and business credit cards for your needs. Sign up for a free account today to start monitoring your business credit and find the financing you need. 

This article was originally written on November 2, 2018 and updated on July 29, 2022.

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