By Joel Chouinard, CFP®
August 8, 2024
It seems like we cannot go one week without reading in the news about a large company being hacked and having its data compromised. The reality is that hackers also target small businesses because they are often more vulnerable due to a lack of data protection infrastructure. Small businesses hold just as sensitive data as large companies (date of birth, social security number, banking information, etc.), making them ideal targets for hackers. Given this environment, there is a good chance your information will eventually make its way into ill-advised hands. With that information, these ill-advised hands could open credit cards on your behalf, or worse, steal your identity. How can we, as consumers, protect ourselves from these cyber threats? One easy and efficient way is to freeze our credit.
What is a Credit Freeze?
Anytime you want to purchase something on credit, whether that’s getting a mortgage, financing a car note, or simply opening a credit card, the company that is lending you the money will run a credit check. This credit check is typically done with one of the three major credit bureaus (or a combination of the three): TransUnion, Equifax, and Experian. Each of these three bureaus has its own report that shows your credit history, including credit utilization, payment history, delinquencies, debt collection, and bankruptcy. Lenders use this information, among other things, to determine your worthiness as a borrower (i.e., the likelihood that you will repay the loan back without any missed payments). Freezing your credit simply means lenders cannot access your credit reports. As a result, they are much less likely to approve new credit in your name, significantly reducing the chances of identity theft.
How to Freeze Your Credit
To freeze your credit, you must first create an account with the credit bureaus. Once logged in, you simply click on the “freeze” button, and you are good to go.
Below is a link to each of the three major bureaus’ websites:
1. TransUnion: https://www.transunion.com/credit-freeze
2. Equifax: https://www.equifax.com/personal/credit-report-services/credit-freeze/
3. Experian: https://www.experian.com/freeze/center.html
Unfreezing Your Credit
If you plan to purchase something on credit (e.g., a new car, furniture, etc.), or you know a lender will run your credit (e.g., getting pre-approved for a mortgage, opening a new credit card, etc.), you simply want to unfreeze your credit at least a few hours before. If you do it online or by phone, the freeze will usually be lifted within one hour. My personal recommendation is to ask the lender which bureau they will use for their credit check, so you don’t have to lift the freeze on all three if it is not necessary. Note that there is no cost to freezing or unfreezing your credit with these bureaus.
Don’t Stop at The Three Major Credit Bureaus
Although most lenders will use one of the three major bureaus to run your credit, several other credit agencies collect, store, and sell your personal data.
These agencies are typically more niche-focused and provide specific information to lenders, such as tenant screening or utility payment history. Most of these agencies also allow you to freeze your credit for free, so it might be a good idea to take an extra 30 minutes and knock these out as well. You can find a list of the additional credit reporting agencies here.
Other ways to protect your personal data
Since I’m not a data expert, I asked ChatGPT for other suggestions on how to protect your personal data. Below are a few items that I thought were useful:
- Use Strong, Unique Passwords: Create strong, unique passwords that contain at least 12 characters, combining uppercase and lowercase letters, numbers, and special characters. If you’re afraid you won’t remember your passwords, consider using a reputable password manager.
- Enable Two-Factor Authentication (2FA): Enabling two-factor authentication adds an extra layer of security by requiring a second form of verification, such as a text message code or an authentication app.
- Use Secure Networks: Avoid accessing financial accounts over public Wi-Fi. Instead, use a secure, private network or a virtual private network (VPN) when managing your finances online.
- Be Wary of Phishing Scams: You should always be cautious of emails, texts, or phone calls asking for personal information or containing suspicious links. One way to verify if the email is legitimate is to log into your account separately (i.e., not using the link from the email) or call your financial institution directly.
- Monitor Accounts Regularly: You probably have heard me say this before, but reviewing your bank account and credit card transactions at least once per month should be the golden rule. This not only helps you monitor your budget, but also spot potential fraudulent transactions.
Final Note
Most people would agree that freezing your credit is the right thing to do to protect your data and minimize the chances of identity theft. The primary reason why many people don’t do it is they either don’t know about it or they are procrastinating. I’ll be honest: I was in the latter camp until recently, but I finally put some time on my calendar to do it. All in all, it took me under an hour to do it for both me and my wife. This was an hour well spent, given how financially disastrous and time-consuming identity theft could be.
SharpEdge Financial LLC is a registered investment adviser registered with the State of Texas. Registration does not imply a certain level of skill or training. The views and opinions expressed are as of the date of publication and are subject to change. The content of this publication is for informational or educational purposes only. This content is not intended as individualized investment advice, or as tax, accounting, or legal advice. Although we gather information from sources that we deem to be reliable, we cannot guarantee the accuracy, timeliness, or completeness of any information prepared by any unaffiliated third-party. When specific investments or types of investments are mentioned, such mention is not intended to be a recommendation or endorsement to buy or sell the specific investment. The author of this publication may hold positions in investments or types of investments mentioned. This information should not be relied upon as the sole factor in an investment-making decision. Readers are encouraged to consult with professional financial, accounting, tax, or legal advisers to address their specific needs and circumstances.
SharpEdge Financial LLC is a registered investment adviser registered with the State of Texas. Registration does not imply a certain level of skill or training. The views and opinions expressed are as of the date of publication and are subject to change. The content of this publication is for informational or educational purposes only. This content is not intended as individualized investment advice, or as tax, accounting, or legal advice. Although we gather information from sources that we deem to be reliable, we cannot guarantee the accuracy, timeliness, or completeness of any information prepared by any unaffiliated third-party. When specific investments or types of investments are mentioned, such mention is not intended to be a recommendation or endorsement to buy or sell the specific investment. The author of this publication may hold positions in investments or types of investments mentioned. This information should not be relied upon as the sole factor in an investment-making decision. Readers are encouraged to consult with professional financial, accounting, tax, or legal advisers to address their specific needs and circumstances.