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What Is A Credit Freeze And Why Would I Do It?

6-minute read

Should you order credit freezes from the three national credit bureaus of Experian, Equifax and TransUnion®? Definitely. Data breaches where criminals steal the personal information of consumers are far too common, but freezing your credit can prevent thieves from using your financial information to open a new credit card account or take out a loan in your name.
 
However, while freezing your credit could protect you from some forms of identity theft, a credit freeze will not stop criminals from using your personal data to access your existing accounts.
 
"A credit freeze does not prevent an identity thief from stealing information on a current account or from making charges to an account," said Freddie Huynh, vice president of credit risk analytics with Freedom Financial Network in San Mateo, California. "It is still critical to monitor credit card, bank and insurance statements."
 
Even with this security hole, you should still freeze your credit. If you don't, you're simply leaving yourself more vulnerable to identity theft.

What Is A Credit Freeze?

When you freeze your credit, you prevent lenders and others from gaining access to any of your three credit reports, one each maintained by the country’s three credit bureaus: Experian, Equifax and TransUnion®.
 
This also prevents scammers and criminals from accessing these reports, too. That's a good thing. If thieves can't access your credit reports, they can't steal the personal information they contain, everything from your Social Security number to your credit card and bank account information.
 
Say a thief steals your Social Security number, if this thief tries to open a new credit card account in your name, the financial services company behind that credit card won't be able to access your credit reports. They then won't be able to open a new account in your name.
 
Patricia Russell, a certified financial planner in San Francisco and founder of FinanceMarvel, said that you shouldn't be complacent after freezing your credit. You still need to keep tabs on your bank accounts and credit cards to make sure no one is making unauthorized purchases or draining your funds.
 
You should also order your free credit reports from AnnualCreditReport.com to make sure no one has opened new accounts in your name.
 
"While a credit report can remove a huge burden, don't let someone fool you into believing you're protected from every possible occurrence of identity theft or a data breach," Russell said. "We hear about data breaches almost daily, and they're getting more brazen with every passing day."
 
This is an important layer of protection. Fortunately, freezing your credit is both easy and free. The free part is thanks to a federal law passed in 2018 mandating that Experian, Equifax and TransUnion® must allow consumers to both freeze and unfreeze their credit at no charge.

How To Freeze And Unfreeze Your Credit

Freezing your credit won't take long, but you will have to do it three times. You can't just freeze your credit with one credit bureau. You'll have to do it with all three if you want to keep your credit reports away from thieves and scammers.
 
You can order your freezes online by going to the freeze pages run by TransUnion®, Equifax and Experian. If you prefer to speak to an agent, you can call the bureaus to request a credit freeze. You can also order a freeze by phone by calling Equifax at (800) 685-1111, TransUnion® at (888) 909-8872 and Experian at (888) 397-3742.
 
Once you freeze your credit, the credit bureaus will send you a personal identification number (PIN). Don't lose this number – you'll need it to unfreeze your credit.
 
You'll need to unfreeze your credit whenever you want to apply for a mortgage, auto, student or personal loan. You'll need to do this whenever you apply for a new credit card, too. That's because lenders and credit card providers need to access your credit reports when determining whether you qualify for a loan or card. If your credit is frozen, these financial professionals won't be able to do this and will reject your application.
 
If you do unfreeze your credit to apply for a loan, be sure to freeze it again once your loan application is approved.
 
Nathan Grant, credit industry analyst with Credit Card Insider, said that freezing your credit isn't the only step you should take if someone has stolen your personal or financial information.
 
"Credit freezes are a preventative measure, so if you have already become a victim of fraud or identity theft, it will only prevent further actions from being taken," Grant said. "Filing an identity theft report should be at the top of your priority list."

How Does A Credit Freeze Affect Your Credit Score?

Fortunately, freezing your credit will not hurt – or help – your credit score. However, blocking a thief from running up credit card debt or taking out loans in your name, and not paying them back, could prevent your three-digit credit score from tumbling.
 
You can repair the damage done to your credit score by identity thieves, but the process isn’t easy. You’d have to file disputes with the credit bureaus and with credit card providers and lenders explaining that you have been the victim of identity theft. Keeping thieves from accessing your credit reports initially is an easier way to protect your credit score.

Why Is It Important To Have A Good Credit Score?

Keeping your credit score high is important. Lenders use your three-digit score – which summarizes how well you’ve paid your bills and managed your debt – to determine if you qualify for loans or credit cards.
 
Your credit score also plays a key role in the interest rate attached to your credit cards and loans. If your score is low, your interest rate will usually be higher, making it more expensive for you to borrow money. If your score is high, your rate will usually be lower.

What Is A Good Credit Score?

Every lender is different, but most consider a FICO® Score – one of the most widely used credit scores – of 740 or higher to be particularly strong. A score under 620 will make lenders nervous.
 

What Is A Good VantageScore?

Your FICO® Score isn't your only credit score. There's also the VantageScore 3.0®, a credit score developed by Experian, Equifax and TransUnion®. According to Experian, a VantageScore of 700 or higher is considered good, while a score higher than 750 is considered excellent.

Credit Score Ranges

According to Experian, FICO® Scores range from a low of 300 to a high of 850.
 
Here's a look at FICO® Scores categorized by strength:

Credit Score Rating
300 – 579 Very Poor
580 – 669 Fair
670 – 739 Good
740 – 799 Very Good
800 – 850 Exceptional

The VantageScore also ranges from 300 to 850.
 
Here’s a look at VantageScores categorized by strength:

Credit Score Rating
300 – 499 Very Poor
500 – 600 Poor
601 – 660 Fair
661 – 780 Good
781 – 850 Excellent

What Is The Minimum Credit Score Needed To Buy A House?

Your credit score plays an important role in buying a house. If you have a low score, lenders won’t approve your application for a mortgage.
 
Fortunately, you don’t need a score in the excellent range to qualify for a mortgage. You can qualify for a loan insured by the Federal Housing Administration, better known as an FHA loan, with a FICO® Score as low as 580. You’ll only need a down payment of 3.5% of your home’s purchase price with such a score.

You can even qualify for an FHA loan with a FICO® Score as low as 500, but you will need a down payment of at least 10% of your home’s purchase price.
 
Be aware, though, that many lenders won’t approve you with such a low score, even if you can qualify for an FHA loan. Lenders vary, but they are typically leery of working with borrowers with a FICO® Score under 600.
 
You will have to pay higher interest rates, too, when you qualify for a loan with a lower credit score. That’s because lenders consider you more likely to miss your mortgage payments. To make up for the increased risk, they charge higher interest rates.

How Do I Get A Good Credit Score?

It’s clear, then, that getting and maintaining a good credit score is important when you apply for credit cards or loans.
 
Fortunately, building a good credit score isn’t difficult. Pay your bills on time each month and pay off as much of your credit card debt as you can. If you do pay off a credit card, don’t close the account. Doing so could hurt your credit score.
 
And while it doesn’t play a direct role in the strength of your score, freeze your credit, too. Doing so will decrease the odds of identity thieves wreaking havoc on your credit, something that could cause your score to plummet through no fault of your own.
 
While you can repair the damage caused by criminals opening accounts in your name, it’s not something you’ll want to have to do. And whenever making any credit decisions, be sure to consult a financial professional first.
 
And when you’re ready to review your free credit report, start with Rocket HQ℠.

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