Protecting Your Finances: Freezing Your Credit Reports and Other Safeguards

In recent years, the frequency and scale of data breaches have skyrocketed, exposing hundreds of millions of individuals to the risk of financial fraud. Since the beginning of the year, we have seen some of the largest and most damaging attacks on record, including:

• Change Healthcare, a division of UnitedHealth that provides payment processing services to hospitals and other health care companies was attacked in February. An investigation is ongoing, but the health insurance information, medical records, billing data, and personal information of a “significant portion of the U.S. population” may have been exposed.
• National Public Data, a company that aggregates data to create background checks, confirmed it was hacked in April, exposing an estimated 2.9 billion records, including Social Security numbers and other identifying information.
• In July, AT&T said cybercriminals stole data containing phone numbers and call records of “nearly all” of its customers, or around 110 million people. This is AT&T’s second data breach this year, following an incident in March when 73 million customer records were posted to a cybercrime forum.

As these breaches become more prevalent, it is crucial to take proactive measures to protect your personal information. One of the most effective steps you can take is freezing your credit reports with the three major credit bureaus: Equifax, Experian, and TransUnion.

Why Freeze Your Credit Reports?

A credit freeze, also known as a security freeze, is one of the most effective tools available to protect against identity theft. When you freeze your credit report, it restricts access to your credit file, making it nearly impossible for new creditors to open accounts in your name without your permission. Even if a criminal obtains your personal information, they will be unable to use it to commit financial fraud by opening new accounts.

Freezing your credit reports is straightforward and can be done online, by phone, or via mail. Each of the three major credit bureaus—Equifax, Experian, and TransUnion — allows you to request a freeze for free. Once your credit report is frozen, you will receive a unique PIN or password that you can use to unfreeze your credit when needed, such as when applying for a loan or a new credit card.

It’s important to note that a credit freeze does not affect your existing accounts. You can still use your credit cards, take out loans, and maintain your financial activities as usual. However, it provides a strong layer of protection against new accounts being opened in your name without your authorization.

Additional Tips to Protect Against Financial Fraud

While freezing your credit reports is a significant step, it’s not the only measure you should take to protect yourself from financial fraud. As we have suggested in previous articles, here are some additional tips to enhance your security:

1. Monitor Your Credit Regularly

Even with a credit freeze, it’s important to keep an eye on your credit reports. You are entitled to a free credit report from each of the three bureaus once a year through AnnualCreditReport.com. Reviewing these reports helps you spot any suspicious activity, such as accounts you don’t recognize or inquiries from unfamiliar sources.

    2. Set Up Fraud Alerts

A fraud alert is another protective measure you can take. Unlike a credit freeze, a fraud alert doesn’t block access to your credit file, but it does notify potential creditors that they should take extra steps to verify your identity before opening an account. You can set up a fraud alert with one credit bureau, and it will automatically be applied to your reports with the other two bureaus.

    3. Use Strong, Unique Passwords

Many data breaches occur because of weak or reused passwords. Ensure that you use strong, unique passwords for all your online accounts, particularly for financial institutions. Consider using a password manager to generate and store complex passwords securely.

    4. Enable Two-Factor Authentication (2FA)

Two-factor authentication adds an extra layer of security by requiring not just your password, but also a second form of verification, such as a text message code or biometric data. Enabling 2FA on your financial accounts can significantly reduce the risk of unauthorized access.

    5. Be Cautious with Phishing Scams

Phishing scams are a common method used by criminals to obtain sensitive information. Be cautious when receiving unsolicited emails, texts, or phone calls asking for personal information. Always verify the authenticity of the request by contacting the organization directly through a trusted method.

    6. Monitor Your Bank and Credit Card Statements

Regularly reviewing your bank and credit card statements can help you quickly detect any unauthorized transactions. If you notice any suspicious activity, report it to your financial institution immediately. 

In an era where data breaches are becoming increasingly common, it’s essential to take proactive steps to protect your financial well-being. Freezing your reports with the three credit bureaus is a powerful measure to prevent identity theft and financial fraud. By combining this with regular monitoring, strong passwords, and other security practices, you can significantly reduce your risk and maintain control over your financial future. 

Meet Brian Mackin, CFP® »

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