Your credit score and report are important factors that determine your eligibility and terms for loans and credit cards. However, they can also be vulnerable to identity theft and fraud, especially if someone gets access to your personal and financial information. In such cases, you may want to protect your credit file from unauthorised access and misuse. One way to do that is by using a credit freeze.
What is a Credit Freeze?
A credit freeze, also known as a security freeze, is a feature that allows you to restrict access to your credit reports. When you freeze your credit, you prevent potential lenders and creditors from viewing your credit history, which can stop them from approving new credit applications in your name. A credit freeze can help you prevent identity theft and fraud, as well as safeguard your credit score.
A credit freeze is different from a credit lock, which is another feature that some credit bureaus offer. A credit lock is similar to a freeze in that it restricts access to your credit file, but it is more convenient and flexible. You can lock and unlock your credit anytime using an app or online account without having to provide a PIN or wait for confirmation. However, a credit lock may not be as secure as a freeze, and it may come with a fee or require a subscription.
How Does a Credit Freeze Work?
In India, there are four major credit bureaus that collect and maintain your credit information: CIBIL, Experian, Equifax, and CRIF High Mark. Each of these bureaus has its own process and requirements for placing or lifting a freeze on your credit report. You need to contact each bureau separately and follow their instructions to freeze or unfreeze your credit.
When you place a freeze on your credit report, the bureau will provide you with a unique PIN or reference number that you need to remember. You will need this PIN or reference number to lift the freeze on your credit report later.
When you lift the freeze on your credit report, you can choose to do it temporarily for a specific period or permanently. You can also specify which lenders or creditors you want to allow access to your credit file.
You should keep in mind that freezing your credit does not block access to your credit file completely. Some entities can still view your credit history even when you have a freeze in place, such as:
- Your existing lenders and creditors
- Government agencies with a court order or search warrant
- Collection agencies acting on behalf of your creditors
- Yourself, when you request your free annual credit reports
- Companies that offer pre-screened credit offers
A credit freeze also does not affect your existing credit accounts. You can still use your credit cards and loans as usual, but you need to keep making timely payments to avoid late fees and interest charges. A credit freeze also does not prevent you from improving your credit score by following good credit habits.
Advantages and Disadvantages of Freezing Your Credit
A credit freeze has some advantages and disadvantages that you should consider before using it. Here are some of them:
- It can protect your credit file from identity theft and fraud by blocking new credit inquiries in your name.
- It can safeguard your credit score by preventing unauthorised hard inquiries that can lower your score.
- It is free of cost and does not expire until you lift it yourself.
- It can be inconvenient and time-consuming to place and lift a freeze with each bureau separately.
- It can limit your access to new credit opportunities, as you need to lift the freeze before applying for any loan or card.
- It can cause delays or complications in situations where you need to verify your identity or creditworthiness, such as renting an apartment, getting a job, or opening a bank account.
Example of Credit Freeze
To illustrate how a credit freeze works, let us take the example of Ravi, who wants to apply for a personal loan from Bank A. Ravi has placed a freeze on his credit reports with all four bureaus. Here is what will happen when he applies for the loan:
-Bank A will try to access Ravi's credit history from any of the four bureaus.
-The bureau will deny Bank A's request, as Ravi's credit file is frozen.
-Bank A will inform Ravi that they cannot process his loan application without his credit report.
-Ravi will have to contact the bureau and request them to lift the freeze on his credit file temporarily for Bank A.
-The bureau will ask Ravi for his PIN or reference number and verify his identity.
-The bureau will lift the freeze on Ravi's credit file for Bank A for a specific period.
-Bank A will access Ravi's credit history from the bureau and process his loan application based on his eligibility.
-After the specified period, the bureau will automatically restore the freeze on Ravi's credit file.
A credit freeze is a useful feature that can help you protect your credit file and score from identity theft and fraud. However, it also has some drawbacks that can affect your access to new credit and other services. Therefore, you should weigh the pros and cons of freezing your credit before using it. You should also monitor your credit reports regularly and report any suspicious activity to the concerned bureau. By doing so, you can maintain your credit health and security.
To check credit score for free, click here.