Fraud Alert vs Credit Freeze - What is the Difference

29-Nov-2017 written by : FSI-Team

Fraud Alert vs Credit Freeze

In the wake of increasing number of data breach cases, consumer’s fears have heightened. They have become apprehensive about the security of their sensitive personal information. They want to take precautionary steps to protect their personal information.

Checking one's CIBIL report regularly is a good way to monitor and keep a watch on credit activities. One must check the transactions to make sure there are no unauthorized charges on the credit card. One must also keep a watch on the accounts mentioned in the report to ensure no thieves have opened fraudulent accounts in their name. This is a very good credit practice that helps maintain one’s credit health. But even though checking CIBIL report helps one uncover cases of identity theft, it is a reactive approach where you catch suspicious activity after it may have already damages your credit health to a certain extent. Resolving the problem thereafter may require significant amount of time, effort and money.

Tools like Fraud alert and credit freeze proactively help in keeping identity theft problems at bay. But there is a lot of confusion regarding which tool is best for a particular situation. Let's delve deep into these two topics to find out how they can prevent fraudulent use of your personal data. When you know how each one works, you will be able to decide which one to set up depending on your circumstances.

Fraud Alert

A fraud alert is a kind of warning that is placed on your credit record. It requires the new lenders to contact you and verify the identity before opening any loan or credit card account in your name. So if anyone tries to use your identity to borrow money in your name you will be notified immediately. It will prevent anyone from opening any fraudulent account by using your identity.

It is very easy to set up a fraud alert. Just contact any one bureau and ask it to place an alert on your credit file. This bureau will notify the other bureaus regarding the same. If you have lost your wallet, used a card at a store that has suffered a data breach, or revealed a lot of personal info on phone or online then fraud alert is a good way to ensure that your private information is not used in a wrong way. An initial alert stays for a period of 90 days, and thereafter it can be renewed again. You can get an extended alert for a period of 7 years if you provide a written proof or documentation that specifies that you have been a victim of identity theft. There is no charge for setting up a fraud alert.

Credit freeze

When you place a credit freeze, lenders will not be able to access your credit report without your authorization. As you know, all lenders check the credit report of an individual before issuing a new credit card or approving a loan. A freeze will make it impossible for them to access essential data required for approval and grant any new loan in your name without your consent. Credit freeze offers a stronger level of protection than a fraud alert that only requires a thorough verification of identity. If your name had entered a loan defaulters list due to an identity theft, you would prefer a freeze to prevent any new fraudsters from opening accounts in your name.

If you yourself wish to open a new loan account, buy insurance, apply for a new job or rent an apartment you will need to lift the credit freeze temporarily so that the lender, insurer, prospective employer or landlord can view your report. Even they will not be able check your CIBIL report if a freeze is in place. Since it takes time to freeze and unfreeze an account, you need to plan a little in advance if you wish to apply credit in the near future.

In order to place a credit freeze with all the 3 bureaus you need to contact each of them individually. There is a fee associated with placing this alert. The freeze stays unless you ask it to be lifted. People who have already been an identity theft victim or people who are at risk of fraud usually use a freeze to take an extra precaution.

Though a credit freeze provides a stronger protection it is not suitable in all situations. If you plan to apply for a new loan, or refinance a mortgage in the near future then you need to weigh the cost and effort involved in freezing and unfreezing account every time you submit an application. If you haven’t suffered any losses due to identity theft and just wish to keep a close watch on your credit, fraud alert may be an ideal option.



Don't miss a bit of Credit News
Join the FSI Force