After a bitterly cold and seemingly endless winter here in the Midwest, I’m sure the last thing any of us want to hear about is anything related to freezing or cold. Thankfully, I’ll be laying out the potential benefits of a Deep Freeze in figurative and financial sense, not literal terms so rest easy. Before getting to the Deep Freeze, allow me to provide some context.
We all hear the news stories of data breaches and identity theft. If it seems the occurrences have been more common of late, you’d be correct as the Identity Theft Resource Center estimates 86 million records were compromised in 2014 – an all-time high. In addition, Anthem (the large health care provider) announced in early 2015 a data breach of the crown jewel of personal data: social security numbers. I presume this is the price we pay for living in an increasingly “connected” world, but still a little scary.
Opportunists and the marketers of identity theft protection services must love the de facto “free advertising” they get with each of these stories splashed across the headlines. It seems we’re inundated with these ads on the radio all-day every day. (Quick aside: As a rule of thumb, most financial products and services advertised on the radio are usually not in your best interest and are “sold” not “bought”. I suspect identity theft protection services could fall the former category.)
As good as those services might claim to be, I think there’s a better approach to protecting your credit that could be more impactful, usually more cost effective but does require some legwork. This is the “Deep Freeze” I’m advocating and it’s called a “credit freeze”.
In a nutshell, a credit freeze is a proactive locking down of your credit profile which prevents the opening of any new credit lines. To me, this seems more effective than the reactive notification only of a credit breach, which is what I believe most of the identity theft protection services essentially provide.
In essence, the credit freeze works like this: You go out to the 3 main credit bureau’s websites and implement the “freeze” which effectively prevents anyone from opening up new credit with your name, whether it’s you (legitimately) or some identity thief (illegitimately). In Ohio it cost $5 per site to essentially lock down your credit and with it, you’ll be issued a PIN number that you must never lose, nor disclose to anyone other than your spouse, assuming the trust factor there. (For your reference, the three websites are: https://www.freeze.equifax.com/Freeze/jsp/SFF_PersonalIDInfo.jsp, https://www.experian.com/freeze/center.html and http://www.transunion.com/securityfreeze)
Then, when you want to open up a new credit card, mortgage, car loan, etc. you would have to first go online to each of these credit bureau sites and “thaw” your credit- each for a $5 fee (in Ohio). This “thaw” allows a window of time for new credit applications to be processed before you “freeze” it again. It may seem like a pain but for most people I work with, opening credit lines is maybe a once a year task (if that) as we always try to minimize consumer debt. Plus- how often do you apply for a mortgage or line of credit? Maybe 5 times over 20 years?
In addition to the hassle of the “thaw” and “re-freeze” there are of course, cost considerations. So to implement this initially, it’s $15 total ($5 for the three credit bureaus). To “thaw” let’s say once a year, it’s another $15 and then to “re-freeze”, it’s another $15. So in total, we’re looking at $45 in fees the first year and then $30 / year thereafter, assuming one “thaw” / “refreeze” per year. Compare that to some of the identity protection services however, which can cost $15 to $20 per month you can easily see how the freeze is more cost effective. That said, these identity protection services do appear to add several ancillary services which may or may not be of value to you- that would require a personal value judgement. These services include change of address notification, $1 million of ID theft insurance, “public record report” and other things you can find on their websites.
So if you’re really hell-bent on protecting things outside your credit, you may be interested in paying the $240 per year vs. the $30 per year (estimated) for the credit freeze.
Now I won’t make any guarantees about this or any other service when it comes to identity theft. But it seems to me that a proactive credit freeze, which does take more work, would be the preferred method to reduce chances of fraudulent credit applications alone, the thing I am most concerned about. Of course it won’t stop fraudulent tax return filling or other nefarious acts but at least the most common identity theft would be stopped in its tracks with this process. Coincidentally, I have never heard this process advertised on the radio.