You Have the Right to Freeze Your Credit Report. Should You?

Freezing your credit could be a smart move in some cases.

It's unfortunate that we live in an age where identity theft has become an increased threat. Now that so many people bank and do transactions online, sometimes, all it takes is a single data breach to compromise hundreds of thousands of consumers in one fell swoop.

The good news is that if you've fallen victim to a data breach, you have the right to put a freeze on your credit report. When you freeze your credit, a new lender can't perform a hard inquiry on your credit report to see if you're eligible for a loan. And that could prevent a criminal from attempting to open a new loan or credit card account in your name.

But while you might think a freeze on your credit report is a great way to protect yourself, you should also know that there are downsides to going this route. So before you rush to freeze your credit, you'll need to consider those carefully.

The upside of freezing your credit

If a criminal gets ahold of your Social Security number and other personal information, they could attempt to take out a loan in your name. A credit freeze will stop them from being able to do that, because lenders generally won't loan out money without checking an applicant's credit history first.

Plus, it's pretty easy to freeze your credit. You can do so by filling out a form online, though do note you'll need to repeat this process with all three credit bureaus -- Experian, Equifax, and TransUnion.

Not only is freezing your credit easy, but it won't cost you anything. And you can keep that freeze in place as long as you want.

The downside of freezing your credit

You may be inclined to freeze your credit if you're worried about falling victim to financial fraud. But you should know that credit freezes aren't perfect.

For one thing, a credit freeze will only prevent new lenders from pulling your credit report. It won't prevent fraud on an existing account.

So let's say a criminal steals your credit card and charges a host of expenses against your account. A credit freeze won't do anything to stop that from happening. And it also won't alert you to the fact you're looking at a whole bunch of new charges (though ideally, in that situation, your credit card's fraud department might step in).

What’s more, while setting up a credit freeze is pretty easy, unfreezing your credit can be more difficult. When you freeze your credit, you're given a PIN you can use to reverse that freeze. But if you lose that PIN, it could take weeks to unfreeze your credit. That could prove problematic if, for example, your car dies, you need a new one right away, and you can't get an auto loan because a lender can't check your credit report.

What's the right call?

If you know for a fact that your personal data was recently compromised, then you may want to freeze your credit report. But if you go that route, be sure to keep your PIN in a safe place so if you decide to undo that freeze, you won't encounter major delays.