When to Say "Freeze!"

Some states allow you slam the brakes on information from credit bureaus. But how do you know you're not overreacting?

Talk about an unwelcome call. When I heard the telemarketer's voicemail, I freaked out. It said that since I held more than $2,500 in debt, I was eligible for credit counseling services. There was only one problem with the pitch: I don't have any debt. The next day I called the company to find out how they had arrived at their conclusion about me, but their customer service rep didn't give me a specific explanation.

I was spooked by the notion that someone might be using my hard-earned credit rating to score their dream vacation or plasma TV. Instead of taking my own advice from a previous story (see BW Online, 1/10/06, "The Booming Biz of ID Protection") and calling a consumer-advocacy organization for help, I contacted the credit bureaus Equifax (EFX), Experian, and TransUnion to warn them that I might be a victim of identity theft. Soon afterward, the bureaus sent me contradictory letters. The first one from TransUnion, said my request was considered "frivolous." I began feeling sheepish, but then TransUnion wrote again to say they had placed a fraud alert on my credit report.

In some states, I have the right to require credit bureaus to freeze my information, in an effort to prevent thieves from accumulating debt in my name. New Jersey enacted such a law this January, and many more states have done the same in recent years, including Colorado, Connecticut, California and North Carolina. Around 27 states filed security freeze bills in 2005, according to the consumer watchdog the U.S. Public Interest Research Group (U.S. PIRG).

The right to freeze credit reports may soon extend nationwide. Senate Commerce Committee leaders including Ted Stevens (R-Alaska) are debating recently introduced identity theft legislation which, among other things, would make credit freezes possible on a national level (see BW, 9/12/05, "An ID-Theft Crackdown Gains Momentum").

Linda Foley, who founded the San Diego nonprofit Identity Theft Resource Center, put a freeze on her credit soon after California's credit law went into effect in January, 2003. She hasn't removed it since. After her employer in 1997 used the personal information on her tax forms to get credit and a cell phone, Foley thinks the added protection she now has is well worth the hassle of not being able to obtain new credit accounts. If she ever decides to thaw the freeze, it will take three days for her to complete the process under California's law.

"It keeps me on my budget," Foley says. She can live without the 10% discount you get for opening credit accounts in some stores. She likes having time to think about whether the promotion of the moment was as good as it immediately sounded.

Meanwhile, I'm left to decide how much to worry about identity theft. While pundits disagree about the definition and severity of the crime, the public's concern is certainly real. People have been showing more interest in credit freezes in California since it pioneered the first law in 2003. The state's Office of Privacy Protection received 340 requests for information about credit freezes in 2005, compared with 180 in 2004. On the bright side, only a small proportion of the 5,600 requests that the office received in the year ended July, 2005 related to credit freezes.

"It doesn't hurt to overreact, but it's not worth it to obsess," says Ed Mierzwinski, consumer program director at U.S. PIRG. For some threats, he thinks it's legitimate to exercise your right under the Fair & Accurate Credit Transactions Act (FACTA) of 2003 to place a 90-day fraud alert in your credit file, which requires lenders to check your identity before handing out credit in your name. He added that an alert doesn't stop lenders from issuing credit, so it's not as much protection as a credit freeze.

Whether or not your state allows you to order a freeze on your credit, how do you know when it's appropriate to warn the credit bureaus to keep an eye out for a possible threat? This Five for the Money presents some danger signs that could mean your credit is at risk -- and a final caveat about freezing your credit.

1. Creditor solicitations

If a debt collector or creditor contacts you about a payment that you never knew you owed, that's a red flag for identity theft. So are phone calls from people trying to verify your information on a new account that you don't recognize. You should also take heed of security breach letters on official stationery from a university, hospital, financial services firm, or other institution that you know has had your information, U.S. PIRG's Mierzwinski says.

But it's tricky. Sheila Gordon, director of the victim assistance center for the Identity Theft Resource Center, says she gets phone calls all the time from parents who fear that identity thieves stole their children's Social Security numbers. In a typical case, the mom or dad will find an application in the mail saying their two-year-old was pre-approved for a credit card. The parent, wondering how this could be starting so soon, calls Gordon in a panic. In many cases it turns out that they have a bank account or college fund in their child's name.In those cases Gordon recommends that parents ask their bank if it sold the child's name and address to any third parties. (The credit bureaus offer a toll-free number that enables you to "opt-out" of having pre-approved credit offers sent to you for two years. Call 1-888-5-OPTOUT (567-8688). The Federal Trade Commission (FTC) lists other strategies for avoiding unsolicited offers here.)

After calling your bank first, you might want to see if the credit bureaus have any history about the child. If they do, then it's time to worry about identity theft. Gordon warns that "if you're paranoid and you're writing every week and every month, and you keep going about it, then that automatically prompts the credit reporting agencies to do something -- perhaps build a file.You don't want such a credit report started," she says.

2. Credit report inaccuracies

FACTA has given millions of consumers the right to a free annual report from the credit bureaus at AnnualCreditReport.com. You can check your history every four months by pulling your reports one at a time, instead of from all three bureaus at once.

Betsy Broder, assistant director in the division of privacy and identity protection at the FTC, recommends that you monitor your credit reports regularly and keep an eye out for errors. If you see an address, employer or account listed that you don't recognize, she says you should call the credit bureau.

3. Lost wallet or purse

People whose wallets are lost or stolen invariably call their banks and credit card companies in short order. But they may not think to take the important step of contacting a credit bureau as well. Mari Frank, a mediator and privacy consultant at the nonprofit Privacy Rights Clearinghouse, says when you lose your wallet, you should immediately call a credit bureau and activate a fraud alert. "It won't be a guarantee" against becoming an identity theft victim, Frank says. But she advises you to "put your finger in the hole immediately."

If you've lost only your credit card, you're not yet an identity-theft victim. You can block its use by contacting the financial services firm that issued it to you and you can't be held liable for more than $50 of loss in fraudulent charges (see BW 3/28/05, "Forget Those Comfy Old Rules About Fraud").

However, "the lost wallet is only a lost wallet," says Karen Barney, a communications coordinator at the Identity Theft Resource Center. She thinks that placing a fraud alert in this case is a proactive step.

4. Missing mail

If an identity thief opens a new account under your name under a different address, the credit bureau might tell all your other creditors to contact you at that updated location. Of course, they won't be contacting you anymore. U.S. PIRG's Mierzwinski says that if you stop receiving your bills in the mail, it could be because your account was taken over. He adds, however, that this obvious red flag has grown less common in recent years.

5. Freezes aren't foolproof

While a credit freeze can afford some protection, it doesn't guarantee that someone who has access to your mail, or another source of personal information, won't be able to thaw it. Consumers use passwords to request and remove their credit freezes -- and those can still be stolen.

"The consumer will have a false sense of security" from a credit freeze, warns Nessa Feddis, the senior federal counsel at the American Bankers Assn., a trade group that lobbies for financial institutions.

Identity thieves, after all, do tend to keep quiet.

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