Victims of identity theft have two primary options to protect themselves from further fraud: a credit freeze or a fraud alert. Both options make it harder for someone else to open a new account in your name, but they don't offer the same level of protection.
A fraud alert is a warning added to your credit report that you are a victim of identity theft. If a fraudster tries to open a new account in your name, a lender will pull your credit report, see the warning, and is then supposed to take extra measures to verify that you are truly the person opening the new account.
Fraud alerts last for 90 days, although victims of identity theft have the option to place an extended fraud alert on their credit report that will last for seven years. Sticking with a 90-day option does require you to keep renewing the fraud alert. However, every time you renew the alert, you're eligible for an extra free credit report from each of the major credit bureaus. That means you could check all three of your credit reports every three months for free, which is a wise precaution if you've already suffered identity theft.
To place a fraud alert, visit the website of any one of the three major credit bureaus -- Equifax, Experian, or TransUnion -- and fill out the required form. You only need to alert one credit bureau, as it will notify the other two to place the fraud alert on their credit reports as well. Placing a fraud alert is always free.
A credit freeze makes it impossible for any lender you don't already have an account with to pull your credit report. That means it's also impossible to open any new credit accounts, since no lender would be willing to open such an account without seeing your credit report first. For that reason, a credit freeze is a much stronger level of protection than a fraud alert, since the latter only requires prospective lenders to verify your identity more thoroughly than usual.
On the other hand, a credit freeze is much more of a hassle for you than a fraud alert. A credit freeze also makes it impossible for you to view your own credit report, which means you can't regularly monitor your credit for errors or signs of further identity theft. And if you decide to open any new account that would require a credit check, you'll need to lift the credit freeze temporarily to do so.
In many states, credit freezes are free for victims of identity theft. If you haven't actually suffered any losses yet or you live in one of the non-protected states, you'll need to pay a small fee for this service – around $5 to $10 per credit bureau each time you freeze or unfreeze your credit. Credit freezes typically last until you choose to lift them, although a few states have a seven-year expiration date on freezes.
Which option should you choose?
If you're planning to do anything in the near future that will require a credit check, a credit freeze is probably a waste of time and money. Keep in mind that it's not only lenders who will want to check your credit report: insurance companies and even some employers will do credit checks before agreeing to work with you. And if you feel that you're in danger of identity theft but haven't actually suffered any losses, a fraud alert will allow you to keep a close eye on your credit while giving you a small extra layer of protection.
If you've already suffered losses due to identity theft, placing a credit freeze – at least for a few months – is probably your best option. This will keep the fraudsters who've stolen your identity from doing any further damage while you sort out the mess they've made. Once you've cleared up any damage, you can choose to remove the credit freeze and place a fraud alert instead so that you'll be able to watch for further signs of mischief. While having both a freeze and a fraud alert at the same time won't do you much good, using them in succession this way can give you the best of both worlds.