It is almost impossible to prevent your social security number and other personal information from being discovered or hacked in today’s connected world. Which is why at Peak Wealth Planning we advise our clients to routinely place fraud alerts on their credit files.
A fraud alert is a free notification you can add to your credit report, instructing anyone receiving a credit application in your name to verify your identity before processing the application.
In this article, I'm going to explain what a fraud alert is and why you should apply it to your accounts. I will explain what it does, how it impacts your credit, and when it makes sense to receive a fraud alert. Finally, I will explain the steps you need to take to protect yourself.
What is a Fraud Alert?
A fraud alert is a free notification you can add to your credit report, instructing anyone receiving a credit application in your name to verify your identity before processing the application.
What Does a Fraud Alert Do?
The purpose of a fraud alert is to add a layer of security to the loan application process, with the goal of preventing criminals from opening bogus credit accounts or taking out loans in your name. The first step that typically occurs when a creditor processes your credit application is a credit check, and that requires access to your credit file at one of the national credit bureaus (Experian, TransUnion or Equifax). A fraud alert pauses the credit check process and instructs the creditor to confirm your identity before it accesses your report.
Requesting a fraud alert at any one of the credit bureaus automatically applies alerts to your credit files at all three bureaus. Each fraud alert deactivates itself on a preset expiration date. You can have a fraud alert lifted before its expiration date if you wish, but you must contact each credit bureau individually to do so. There are three types of fraud alerts, and you can request any one that applies to you:
1. A temporary fraud alert. Also known as an initial fraud alert, this type of alert lasts one year and then expires. You can add one to your credit report anytime, for any reason. You can renew it as many times as you like.
2. An active-duty fraud alert. This alert protects active-duty service members on assignment away from home, and also lasts one year unless it's removed earlier.
3. An extended fraud victim alert. Extended alerts last seven years and are designed for victims of credit fraud or identity theft. If you've been victimized and have reported the crime to authorities, you can obtain an extended fraud alert by submitting a copy of the identity theft report you filed with law enforcement.
Does a Fraud Alert Affect Credit?
A fraud alert has no impact at all on the contents of your credit report, or on the credit scores derived from the data stored in your credit report. It therefore can neither help nor hurt your ability to qualify for a loan or credit card. A fraud alert can hinder your ability to get instant approval for credit card or in-store credit offers you encounter online or at retail outlets. The automated approval systems used for these offers may not be equipped to handle the identity-confirmation steps fraud alerts require. So while you cannot be disqualified for a credit offer due to a fraud alert, you may have to contact retailer reps by phone or in-person to complete your application.
When Does It Make Sense to Get a Fraud Alert?
A fraud alert is a good precaution to take if you're worried about potential misuse of your personal information. If you suspect your credit card number or Social Security number has been stolen or exposed in a data breach, for instance (or if you'll be on a military assignment and unlikely to be monitoring your credit activity closely), placing a fraud alert is a good way to quickly add a measure of security to your credit files.
You only need to notify one credit bureau to activate one, and it's only slightly more time-consuming to deactivate fraud alerts than it is to put them in place. In addition, a fraud alert can prevent unauthorized access to your credit files without significantly hindering authorized access to them. It's easy to remove fraud alerts if you discover your data was not compromised, or to just let them lapse if you find you aren't getting any indication that fraudsters are applying for credit in your name.
How to Place a Fraud Alert
Get started by visiting one of the national credit bureaus’ websites – Experian, Equifax, and TransUnion. Select the type of alert you want, and follow the instructions on how to upload or mail in copies of necessary proof of identity.
You'll need to provide: a copy of a state-issued photo ID, proof of address (provided via a piece of mail such as a utility or insurance bill) and an identity-theft report (if you're seeking an extended fraud victim alert).
Placing a fraud alert at any of the national credit bureaus automatically attaches notices to your credit files at all three bureaus.
Protect Yourself
A fraud alert is a useful way to reduce the risk of your personal data from being compromised in a credit scam. It can protect against unauthorized access to your credit files without creating major obstacles to your ability to apply for credit yourself. Once you have placed a fraud alert on your credit report, you will receive a notice in the mail.
We advise our clients and friends to put a reminder on their calendar to renew the fraud alert annually. Keeping fraud alert active on your credit is a good practice that protects your credit.
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Final thought.
Are you comfortable with your progress towards retirement? How about helping future generations meet their financial goals? If you have a net worth over $2 million and need help from a wealth manager, the Peak Wealth Planning team can assist you.
Peak Wealth Planning specializes in helping high-net worth individuals and families plan for the future.
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About the Author
Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind.
Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.