A credit check is an important step in the borrowing process. Lenders run these checks any time someone applies for a personal loan or line of credit. That includes any time a fraudster uses your financial name under false pretenses to open a payday loan.
If you’ve been a victim of identity theft, scam artists use your personal information to apply for a loan and authorize a credit check. Lenders can’t always recognize fraud when it happens, so they might approve the loan and send the fund to your fraudster.
A credit freeze can put a stop to this fraud by making your file unavailable to lenders. No legitimate lender will ever approve a loan without this check, so it can thwart fraudsters who have all your information.
What is a Credit Freeze?
A credit freeze — also known as a security freeze — protects your finances from identity theft. It restricts access to this important report, making it impossible for lenders to check its contents.
When your report is under strict lockdown, a lender can’t perform an accurate risk assessment based on your past borrowing behavior. Without this assessment, legitimate online loan companies won’t move forward with your application.
In other words, they’ll deny anyone trying to apply for a loan with a frozen file.
Usually, being rejected in an emergency means you’re left scrambling to find alternatives when unexpected expenses and urgent repairs come your way. But a credit freeze will also ice out identity thieves, shutting down their attempts at opening new payday loans in your name.
To apply for a freeze, you’ll have to contact each of the three major credit bureaus to enroll in their freezing services. It’s free to apply and free to remove once you’re ready.
What can You Do with a Frozen File?
Let’s say you run into an emergency while under this freeze. You can go online to learn more about borrowing options without worrying about the status of your credit report. This preliminary research stage doesn’t require a check into your file, so you can freely compare your options.
However, it will interfere with your application if you decide to move ahead with a lender. Freezing your account is indiscriminate; it shuts down any attempts at reviewing your file, even if you are the one to apply for a loan. You’ll have to remove this security hold before you can apply.
The good news is that freezing your report only prevents future applications made under your name. It does not affect your existing accounts, which means you can use your open line of credit or loans as usual.
Who should Freeze Their Credit?
A freeze can complicate how easily you can access emergency loans and lines of credit, so it’s not ideal for everyone. Financial advisors recommend this option if you suspect (or know) that you have been a victim of identity theft.
This hold on your account will make it impossible for an identity thief to apply for a loan using your name. It freezes them out until you can change passwords, close accounts, and change account numbers.