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There’s Never Been a Hotter Time to Freeze Your Credit

Until the Equifax data breach, many consumers didn’t know what a credit freeze was. Now, people are discovering the tool in a move that could have unintended effects for consumers and the financial industry.

By

AnnaMaria Andriotis ,

Daisy Maxey and

Telis Demos

Until the Equifax Inc. hack, many consumers didn’t know what a credit freeze was. Now, the credit-reporting company’s massive data breach has people reaching for the tool, a move that could have a host of implications for both consumers and the financial industry.

A freeze typically prevents lenders from accessing a potential borrower’s credit report, although it doesn’t affect existing credit arrangements such as outstanding loans or cards. A freeze makes it unlikely a firm would immediately extend new financing, which, while helping prevent fraud could also slow legitimate business.

Freezes are being promoted as a first line of defense in the Equifax breach, which potentially affected 143 million Americans. It is a more drastic step than credit monitoring, which alerts consumers to potentially fraudulent activity on their reports.

Equifax peers TransUnion and Experian PLC said the number of credit-report freezes being requested by consumers increased significantly in the days after the Equifax news last week. Tens of thousands of U.S. consumers initiated credit freezes on Friday and Saturday alone, said Alex Lintner, president of consumer information services at Experian.

Demand to sign up for freezes appears to be so great that some consumers were complaining of delays or being unable to register on credit-reporting companies’ websites. “The unprecedented number of consumers contacting us after the Equifax announcement has impacted our ability to respond to consumers as we would like,” said TransUnion, adding it has taken steps to increase communications with consumers.

Related

  • Equifax Addresses Hack
  • One Couple’s Quest for Credit Serenity: $5 and a PIN Code
  • Replacing Your Social Security Number Likely Isn’t an Option
  • Equifax Faces Bumpy Legal Terrain as Consumer Suits Mount
  • Hack Puts Equifax at Risk of Pullback by Lenders (Sept. 12)
  • TransUnion Ramps Up Response to Handle Equifax Fallout (Sept. 12)
  • Wealthy Consumers Present Alluring Targets For Hackers (Sept. 12)
  • Equifax Lobbied for Easier Regulation Before Data Breach (Sept. 11)
  • Equifax Customer Complaints Continue to Pile Up (Sept. 10)
  • How to Use Equifax’s Much-Hated Website (Sept. 10)
  • Equifax Hack Likely to Scramble Deregulatory Efforts (Sept. 8)
  • 5 Ways to Protect Your Finances After Equifax Data Breach (Sept. 8)

Kevin Mitnick, who spent time on the FBI's Most Wanted List for hacking 40 corporations, discusses his new book, "The Art of Invisibility," on Lunch Break with Tanya Rivero. He also explains why hackers breach data with relative ease, and why we should never link our devices. Photo: iStock (Originally published Feb. 24, 2017)

Previously, credit freezes were typically initiated by people who either had, say, their identity stolen or earlier instances of fraud on their accounts. While open to anyone and reversible temporarily or permanently, most consumers have in the past shied away from the step because it made getting new credit more cumbersome. In some states, consumers must pay a fee to temporarily or permanently lift a freeze.

In a country of free-flowing credit like the U.S., there is value to relatively open information about a consumer’s creditworthiness. It makes it easier for someone to open a new credit card at a department store or gain quick approval for a mortgage.

But the Equifax hack appears to be changing some of that calculus, as worried consumers say they would rather have their default information status set to off-limits, unless they choose otherwise. That adjustment could change consumer behavior, the flow of consumer credit and, in extreme cases, the long-term rate of growth for consumer financing.

There is little official government data about freezes. A 2014 paper from researchers at the Federal Reserve Bank of Philadelphia estimated that about 2 million U.S. consumers placed a credit freeze or fraud alert on their credit reports in 2012. The paper also showed that freezes spiked in South Carolina that same year in response to a data breach at that state’s Department of Revenue.

“This may start to affect some of the spontaneous nature of credit access,” John Thompson, senior vice president at the Center for Financial Services Innovation, a nonprofit firm that focuses on consumer financial-health issues.

Jeffrey Mark, of Chicago, froze his credit report with Equifax this week and is considering doing the same with the other credit-reporting firms.

“When a credit agency gets hacked, they have very sensitive information,” said the 65-year-old architect, who plans to freeze his credit indefinitely. Mr. Mark said he isn’t a big acquirer of credit cards, but expects that seeking credit will become “more of a hassle” with a freeze in place.

That’s a trade-off he said he is willing to make. Given the amount of information about people taken in the Equifax breach, “it’s very scary if that access becomes available to other people who shouldn’t have it,” he said.

Brendan Dickinson, of Darien, Conn., plans to shop for a car in the near future and said a freeze would make it harder to get credit. Still, that didn’t stop him and his wife from freezing their credit reports with four companies—the big three and another called Innovis—in recent days.

“I’ve added a layer of pain for myself, but it seems worth it,” said the 35-year-old partner at a venture-capital firm, adding that he expects to keep the freeze on for the foreseeable future.

‘I’ve added a layer of pain for myself, but it seems worth it.’

—Brendan Dickinson

Some businesses are worried about how the freezes might hurt business. At Galpin Motors Inc., a Southern California auto retailer that sells brands such as Ford, Honda and Volvo, dealerships began training staff Monday on how to handle frozen credit reports, including who to call at the credit-reporting companies for help, said Brian Allan, a senior director.

Freezes, he added, create challenges for car buyers, potentially delaying purchases for days.

Currently, dealers can call up a credit score within minutes. When a credit report is frozen, it typically requires a customer to first unlock it with a password and then verify its release to the store via a phone call, Mr. Allan said.

Often, customers forget their passwords, and it can take up to 72 hours to retrieve it. Or the agency calls a home phone number to verify the request, even though the customer is at the store, Mr. Allan said. 

“We have people come in, and they don’t realize the extent of what we have to go through,” he said.

Credit specialists said rising freezes could ding loan volume, including for credit cards and auto loans, at the margin.

“Overall, this would lower the actual credit volume and access to credit markets,” said Kyle Herkenhoff, an assistant professor of macroeconomics at the University of Minnesota and a visiting scholar at the Federal Reserve Bank of Minneapolis.

Credit growth was already slowing before the Equifax hack. The rate of year-over-year growth for consumer loans at all U.S. commercial banks fell to 4.1% in July, less than half the recent peak of 8.6% in July 2016, according to Federal Reserve data.

Freezes can also stall lending before it gets started. Lenders often purchase lists of borrowers who meet certain criteria from credit-reporting companies, including Equifax, to mail them credit offers. The lists exclude people who have frozen their reports.

“There probably will be some chilling effect on making credit offers,” said Marla Blow, chief executive of FS Card Inc., which offers credit cards to subprime borrowers. “A spike in freezes is something we are acutely aware of and working through in real-time.”

—Christina Rogers contributed to this article.

Write to AnnaMaria Andriotis at annamaria.andriotis@wsj.com, Daisy Maxey at daisy.maxey@wsj.com and Telis Demos at telis.demos@wsj.com

Corrections & Amplifications
The first name of Kyle Herkenhoff, an assistant professor of macroeconomics at the University of Minnesota, was incorrectly given as Kurt in an earlier version of this article. (Sept. 13, 2017)

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