The Tip Jar: Should you accept Equifax's free credit lock offer?

A credit freeze or a fraud alert looks like a better bet.
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Equifax dealt Americans with another blow this week, saying a further 2.5 million people may have been compromised in the July data breach, adding to the 143 million already affected.

The credit reporting agency's name has been dragged through the mud not only for the breach itself, but the shambolic way it's handled the fallout.

After weeks of criticism, Equifax finally made a concession to consumers worried their personal information puts them at risk of identity theft by offering them a free "credit lock" for life from Jan. 31, 2018.

Related: 

Equifax has become a giant dumpster fire

But what does this mean? And how does it stack up against alternative credit report protections, namely credit freezing and fraud alerts? The Tip Jar takes a look.

What's a credit lock?

Equifax and fellow credit reporting bureau TransUnion are both offering free credit locking as an alternative to the paid-for, federally-regulated credit freeze that many (including myself) say is the best way to protect yourself from identity theft post-breach.

Credit locking has the same effect of freezing in that it would prevent anybody – including you – from accessing your credit report to open a new account.

So if you or an identity thief apply for a financial product in your name, the lender would be unable to see your credit file until you are contacted and grant them access to it.

However, unlike freezing, a credit lock is free from Equifax (and TransUnion) and you could unlock it instantaneously by calling the credit agency, going online or even using a smartphone app.

You also wouldn't need the PIN number you're given when you "freeze" your file (which some people forget).

Why you should be wary

Consumer Reports says that while credit freezes are guaranteed by state law, a credit lock is an agreement with the credit reporting agency itself, which could mean you're deprived of certain privileges and rights to sue. 

And as the New York Times points out, people who sign up for TransUnion's credit lock end up "on lists for various offers of credit," though Equifax has said this week that it won't do the same.

The newspaper says TransUnion and Equifax are trying to push consumers to opt for a lock rather than a freeze, because the bigger the barrier to your credit report, the more difficult it is for the companies to sell access to your file.

What's more, while Equifax and TransUnion offer credit locking for free, to get full protection you need to restrict access to all three major credit reporting agencies, which means you have to include Experian in the mix.

Experian, however, doesn't offer free credit locking, instead charging $5 for your first month and then $25-per-month afterwards, meaning a credit lock is more expensive than a freeze if you want full protection.

So if you do opt for a credit lock, you're opting for a deal from Equifax that is free but with scant details, a deal from TransUnion that leaves you vulnerable to credit offers, and a deal from Experian that eventually costs you $25-a-month. 

Why is a credit freeze better?

As mentioned above, a credit freeze is backed by law, so if something goes wrong and your files are fraudulently accessed, you'll have complete protection from any financial liability. With locks it's not clear who's liable, Consumer Reports notes.

A credit freeze costs $5 in Minnesota to activate – so $15 for all 3 credit reporting agencies – and $5 every time you want to "thaw" your credit report when you apply for credit (in almost all cases, you only need to thaw your credit report at one bureau).

Until Jan. 31, Equifax is letting you freeze your credit report for free, so you can cut the costs down from $15 to $10.

It takes a little longer to unfreeze your credit report – though not as long as credit reporting agencies would have you believe.

TransUnion warns of a "waiting period" when you want to thaw your file when you apply for credit, but spokesmen for TransUnion and Equifax told the New York Times that lifting the freeze should take no longer than 15 minutes provided you have your PIN on hand.

If you're worried about the cost of thawing your credit file, Forbes writer Larry Light points out that unless you're in the business of applying for credit several times a year, chances are you won't have to pay out that often.

He writes:

"In nearly a decade of experience with a credit freeze, I have had to lift the freeze four times for a total cost of $12 (prices differ depending on states). The occasions where a lift is needed include applying for a new credit card, applying for a loan or mortgage, and switching cell phone carriers (where monthly credit is extended). As long as you are not doing these things several times per year, the hassle is minimal."

Don't forget fraud alerts

If you're minded not to pay anything at all, then you could consider placing a fraud alert on your credit file.

This is free of charge and unlike credit freezes, you only have to contact one of the credit reporting agencies to have a fraud alert placed on all three of your files.

Fraud alert offers protection against identity theft but is not as strict as credit locking or freezing.

When an application for a financial product is made in your name and the lender/landlord/bank sees a fraud alert on your file, it must take steps to verify your identity before extending credit – typically by calling you.

However fraud alerts only last for 90 days, so you need to make sure you renew the alert when it expires to keep up your protection.

If you've already been a victim of identity theft, you're entitled to free extended fraud alerts, which last for seven years.

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