Free credit freezes are coming – but similar options are already here

Americans will get free, fast credit freezes following last week’s enactment of S. 2155, the Economic Growth, Regulatory Relief and Consumer Protection Act.

Most of the law’s 73 pages soften bank regulations that were designed to prevent another financial crisis like the one in 2008.

But Section 301 provides an important consumer benefit.

  • Credit freezes block fraudsters from getting a loan in your name by keeping lenders out of your credit file.
  • Currently, freezes are administered under a patchwork of state laws. Credit freezes usually carry a fee of $5 to $10, plus fees for each time they’re lifted, and the process can be cumbersome.
  • The new law requires freezes, when set up electronically, to be placed within one day and removed within an hour of the consumer’s request.

The big three credit bureaus expect to meet the requirements by the deadline of Sept. 21.

Credit locks offer a sneak peek of upcoming credit freezes

But we already have a pretty good idea of how the new freezes will work.

Equifax and TransUnion – two of the big three credit bureaus – already provide free services, online or via mobile app, that let you lock and unlock your credit file almost instantaneously.

Existing creditors, employers and some others can still see your file. But not lenders extending new credit.

So far, Experian charges for its credit locking service. There will have to be a free alternative under the new law.

How credit freezes will be implemented

The Federal Trade Commission will oversee the implementation of the new freezes. It will build a single webpage where consumers can go to freeze and unfreeze any one of their major reports, or all three.

That clearinghouse-type webpage is similar to the way we obtain our free annual credit reports from the bureaus now, via a central FTC website.

Clearly, there are big improvements coming in how to protect our credit from fraudsters. Keeping your credit file safely locked up will provide peace of mind. Especially if your Social Security number is one of the millions that were exposed in the Equifax data breach.

But when fraudsters can’t apply for credit in your name, neither can you.

See related: 10 things you should know about identity theft

How to apply for credit while using a credit lock

So how do you go about applying for credit with your credit files locked?

Short of unlocking your credit at all three bureaus, I think the answer boils down to two options:

1. Find out which bureau the lender uses beforehand, and temporarily unlock or unfreeze that bureau’s file. (If the file is frozen under current freeze law, use the PIN that was generated when the freeze was placed.)

2. If you don’t know which bureau the lender uses – as with most online credit card applications – submit the application and wait for the lender to shoot back a request that you unlock your file from a particular bureau.

Nancy Bistritz-Balkan, Equifax vice president of consumer education, told how she used the first option during an application for an auto loan.

“I happened to ask the lender what credit bureau do you use,” she said in an interview, “and they told me.” She was able to unfreeze the correct file ahead of time.

My experience applying for a new card while credit reports locked

That wouldn’t work in an online credit card application. We asked the major card issuers which bureau they pull credit reports from. Most of them said they work with more than one bureau, or all three.

As a test, I went ahead and applied for a new card. My credit is locked at Equifax and TransUnion using their apps, and frozen at Experian under Maryland law.

  • Instead of sailing through, the online credit application halted. The issuer – it happened to be Chase Bank USA, N.A. – said they would be in touch. A few days later, a letter arrived saying they were unable to see my credit file.
  • The lock worked. The specific report they needed happened to be from Equifax. The letter included a phone number to call and a transaction code to help prove my identity.
  • While on the phone with the card issuer, I unlocked the Equifax report using the company’s Lock & Alert app. A moment later, the bank’s rep saw that Chase had obtained the report. He said the bank would go ahead and consider my application.

Whether or not I get the card, it seems as though the credit protection worked as advertised.

The app also notified me in an email that I had unlocked, then relocked, the file.

The test didn’t examine TransUnion’s app, called TrueIdentity. However, according to the company’s description, TransUnion’s online lock should work about the same as the one from Equifax.

 Will credit freezes be enough to protect your credit?

“This is a big advance for Americans who want to protect themselves from identity fraud,” Francis Creighton, president of the credit bureau industry group Consumer Data Industry Association, said of the new credit freeze rights.

Not everyone agrees. Section 301 disappointed some consumer advocates and members of Congress. The free national freeze has exceptions for non-lenders, such as employers, insurers, and background check companies. They can still access your credit file.

Critics also argued that credit files should be frozen as the default position, in order to protect consumers from fraud. People – whose information the credit bureaus are essentially selling – deserve to have control of their data.

But under the law, individuals can make a frozen credit file their default position if they want. They can simply choose that option, then unfreeze when needed to apply for credit.

Getting things done quickly via mobile phone is the way things are going in the financial world, Bistritz-Balkan of Equifax pointed out.

“We’re seeing credit report locks go the way a lot of technology and a lot of consumer demand is going,” she said. “Consumers want everything on their phone; they want it quickly.”

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