Should you freeze your kid’s credit for free?
A new federal law passed in the wake of last year’s mammoth Equifax breach makes it free to freeze your kid’s credit (and yours, too). But as Mom might have asked when you were six and stuck that pea up your nose, just because you can, does that mean you should?
What’s a credit freeze, anyway?
Generally, anyone who has a borrowing history (credit cards, car loans, mortgages, etc.) also has a credit report on file with each of the three major credit bureaus (TransUnion, Equifax, and Experian). When you apply for credit, the prospective lender looks at your credit report (and/or a credit score based on that report) to decide whether they should take the risk of loaning you money.
Identity thieves who nab important info like your Social Security number can take out loans or credit cards in your name, run up big debts, and then leave you to clean up the mess. A credit freeze, also known as a security freeze, can be a significant roadblock for this type of fraud.
When a freeze is active, only companies you already do business with can access your credit report. That makes it hard for criminals to use your clean credit to open new accounts. (It also means you have to lift the freeze each time you want to open a new account yourself.) A credit freeze does not prevent identity theft, which is the act of stealing your identifying information through data breaches, email phishing, and other crimes. But a credit freeze can protect against people attempting to use that information illegally.
Why kids’ credit is a target
Theoretically, children shouldn’t have a credit report yet, because they aren’t paying with plastic or making loan payments. Normally, a credit report is created only when a creditor contributes to it—with information about a new account—or requests one for the first time, explained credit expert John Ulzheimer, formerly of FICO and Equifax.
Identity thieves target kids because their credit history is a clean slate—perfect for hijacking by someone looking to run up credit in another person’s name. An adult fraudster can use an eight-year-old’s Social Security number, substitute a different birth date, and direct lenders to a clean new credit report when applying for a credit card, opening a utility account, or even taking out a mortgage.
Experian estimates that one in four children will be a victim of this before turning 18. (Unfortunately, parents and other relatives with bad credit are often the perpetrators.) Even responsible parents may unwittingly expose their kids’ info when filling out school and medical forms.
Parents may not catch on until months or years later—when a collections bill or IRS tax-due notice shows up in their kid’s name. Or, your kid may only discover the crime in adulthood when he applies for an apartment or credit card and gets rejected because of bad credit, thanks to that fraudulent activity.
Credit freezes for kids: the pros and cons
In the past, some financial experts advised parents not to freeze their kids’ credit, unless their kid has already been a target of identity thieves. That’s because to do so, a file first has to be created, producing a paper trail that, the theory went, might make it easier for identity thieves to hoover up info about your kid. It was also a hassle, and wasn’t even possible in some states. Plus, it cost up to $10 to freeze credit at each of the three bureaus.
Today, however, every kid’s credit is at risk. “It’s definitely a drastic move,” Ulzheimer said. “But we’re living in a world now where large-scale data breaches are announced almost monthly, and there are many more that you never hear about.” Plus, given that so many breaches occur with hospitals and other medical service providers, children are not immune simply because they’re children. Their data is out there and vulnerable.
The verdict is…
Yes, freezing your kid’s credit is a good idea—especially now that the process is free. Of course, it takes a little work. While adults can freeze their own credit files online, to freeze your kids’ you have to mail in an application and supporting documents, which may include copies of your their birth certificates, Social Security cards, and so on. Once the credit freeze is placed, you’ll be given a PIN, which you must use to lift the freeze. (So put this in a safe spot!) If your kids are 16 or 17, the process is easier: They can request a credit freeze themselves online, sometimes requiring a driver’s license or other ID.
Here’s how to do it
Each of the credit bureaus has a slightly different process for freezing your kid’s credit, and you will have to do it separately for all three. Info is available here: Experian, Equifax, and TransUnion.
Freezing your kid’s credit isn’t as immediately rewarding as, say, teaching her how to ride a bike, but it’s important. “It might be many years before your child is old enough to care about his or her credit reports, and even more years until they apply for credit,” Ulzheimer said. “This will be an exercise in properly managing the freeze credentials so that in X years, when your child wants to thaw their credit reports so they can apply for credit for the first time, it won’t be a problem.”