“Should I freeze my credit to protect myself from fraudulent accounts?” Consumers worried about scammers and identity thieves (or sometimes vindictive ex-spouses) often ask that question. But recent news that Wells Fargo fired thousands of employees for opening unauthorized accounts—including debit and credit cards—in customers’ names in order to meet performance goals, has some people wondering if they need to freeze their credit to protect themselves from their banks.
Would a freeze do the trick? A recent thread on Reddit warns readers that a credit freeze would not have stopped Wells Fargo employees from opening new accounts in customers’ names. We took a closer look.
A bit of background first. When you place a freeze on your credit reports, most companies trying to check your credit reports or scores won’t be able to do so unless you lift, or “unlock,” the freeze, either temporarily or permanently.
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Exceptions to Every Rule
But there are security freeze exceptions that allow access to these reports. These include:
• Companies with whom you have an existing relationship, in order to review or monitor an existing account
• Collection agencies acting on their behalf
• Law enforcement, child support agencies, or those with a court order or subpoena
• Credit monitoring agencies (so you can continue to monitor your credit)
• Government agencies with permission to access credit reports under federal law
An individual with a frozen credit report should be protected against unauthorized accounts being opened in his or her name, according to a spokesperson with credit reporting agency Experian:
“If a consumer has an existing account with a financial institution, under the FCRA those organizations can review the consumer’s credit report for the purpose of account maintenance, i.e. account monitoring, credit line increases and account upgrades and enhancements along with collecting the account regardless of the credit report being frozen. However, if a consumer’s credit report is frozen, a company pulling a credit report to open a new account will receive a notice that the credit report is frozen.”
One potential loophole: A creditor doesn’t have to run a credit check to open a new account. If the issuer feels it has sufficient information about the customer, perhaps based on other accounts that individual has with them, it may forgo one.
Under the Truth In Lending Act, it is illegal for card issuers to open credit card accounts without the customer’s authorization, yet in this case, the Consumer Financial Protection Bureau alleges the bank employees “submitted applications for 565,443 credit-card accounts that may not have been authorized by using consumers’ information without their knowledge or consent.”
The bottom line is that it’s not always impossible for someone to access your credit if you have placed a freeze, but it’s generally quite difficult. That may make it sound like freezing your credit file as a proactive measure to protect yourself is a no-brainer.
But before you go that route, watch out. There are some downsides.
First, you may have to pay to freeze your reports. Freebie freezes may be available under your state’s laws if you are a victim of identity theft, or for individuals based on their age (minors or those over age 65, for example). You’ll find a list of state security freeze laws here.
If you are not entitled to free freezes you’ll have to pay to freeze and to unlock your file(s) each time someone needs to access your credit reports. And don’t assume that just because you don’t need credit, you don’t need to use your credit reports. Need a new cellphone plan? There will probably be a credit check. Shopping for auto or homeowner insurance? Ditto. Those fees for lifting the freeze can add up quickly.
No Freeze for Business
Small business owners in particular should think carefully before placing a credit freeze on their personal credit reports. Business financing often involves a personal credit check, even for those businesses with strong business credit scores. And the credit freeze laws above don’t apply to commercial credit reports.
A Better Way?
While victims of identity theft will want to consider placing a fraud alert or a credit freeze, if you’re just generally interested in protecting your credit, consider monitoring your credit reports and scores on a regular basis, which you can do for free through many sources. (Nav is currently the only place where business owners can monitor both personal and business credit for free.) If a new account is reported, you can dig deeper.