The growing problem of identity theft has spawned a new industry aimed at keeping your credit information safe by “locking” your credit file. These companies typically charge a monthly fee for their services. One such company advertises that they will pay you 1 million dollars if your identity is stolen while you are an active user of their services. When you get behind all the advertising hype, the vital question is whether or not the monthly expenditure is worth it.
Making a request of the credit bureaus to lock your report does not mean your files will remain locked indefinitely. In theory a credit report lock or security freeze lasts indefinitely. In actuality, the lengths of security freezes vary from one state to another. In addition, credit bureaus require the consumer to “renew” the locks after a given period of time. Since there is no limit to number of renewals, one’s reports can be under a security arrangement for life… but only if the requests are renewed.
One myth surrounding this arrangement is that locking your credit report means the content is “frozen” at the moment in time when the security lock is put in place. This is totally untrue. The lock means access to your information by new sources is severely restricted, but new information still continues to be added. So if you increase your use of current accounts or make payments late, this information will still affect your credit scores.
Even during lock-up, your credit information is still available to those companies with whom you already have open accounts. Likewise the data remains available to employees of the credit bureaus, governmental officials, insurance companies and potential employers who have your permission. So, are there benefits in paying the fees required to place a security freeze on your credit report?
Locking your credit report prevents new accounts from being opened in your name without your knowledge and consent. In order to establish new credit, you must temporarily unlock your credit file through a specific procedure. In that way, the lock provides protection. With constant growth of credit identity theft, lock-up may be something you need. If you are likely to establish a number of new credit accounts in rapid succession, however, the cost and inconvenience of a security freeze may work to your disadvantage.
One cautionary note is in order. Putting a credit report lock-up in place is often oversold by companies profiting from implementing this service on your behalf. While locking your credit does have value, it answers a very small portion of the identity theft dilemma. There are other aspects of identity theft in addition to direct credit-related crime. One of the other dimensions of the problem is theft of benefits, an area called Medical Identity Theft. The impact of this kind of theft can be life-threatening as well as financially devastating.