What Car Shoppers Need to Know About Credit Freezes

If you've taken the step of freezing your credit file in the wake of the recent Equifax data breach, you may face some unexpected inconvenience when you're shopping for a car.

You can thank the hackers who breached the databases of credit-reporting agency Equifax and made off with the personal information from as many as 145 million U.S. consumers. Such details as Social Security numbers, birthdates, addresses, credit card numbers and driver's license numbers are now vulnerable to identity thieves, who could use the information to apply for credit or make purchases in your name.

After the attack, many news outlets, online sites and government agencies, including the Federal Trade Commission, told Americans how to protect themselves from identity theft. Among other suggestions, experts urged us to check credit reports, sign up for credit monitoring, and consider placing a security freeze on the credit files.

But what happens if you've frozen your credit and then decide to go car shopping, particularly if you're going to apply for an auto lease or loan? The short version: Hassles may ensue.

What Is a Credit Security Freeze?
Before we talk about the impact of a freeze on car shopping, let's recap: A credit security freeze, or simply a "credit freeze," locks your personal information that's held by a credit-reporting agency, including the largest ones: Equifax, Experian and Transunion. When activated, a freeze reduces the chances that someone will be able to apply for credit in your name by preventing any new credit inquiries unless you tell the agency to unfreeze your file using a personal identification number (PIN) that only you know. That way, if a thief attempts to get credit using your Social Security number or other personal information, the potential lender will be unable to run a credit report, usually the first step in any loan transaction. The criminal will be defeated.

A freeze has no effect on your existing lines of credit, such as bank loans, mortgages and credit cards. Those accounts continue to operate normally, and the firms with which you do business will still have access to your information. But since you've previously granted them the right to read and add data to your file, this should not present any additional security risk.

If you decide to freeze your credit, you'll need to contact each of the reporting agencies individually. You can do this online, by phone or by mail, or on the agencies' websites. In most states there will be a charge, ranging from $3 to $15, for placing a freeze on your credit file. (After pressure, Equifax agreed to waive its fee — but only until November 21.)

Does It Affect Loan Applications?
Yes, indeed. But you can temporarily lift the freeze. This will allow a car dealership, bank or other lender to run your credit report so the lender can process an auto loan. If possible, it's best to find out in advance which agency the lender will be contacting, so you can be sure the right report will be unfrozen. As with initiating a freeze, you can lift the freeze at the agency's website or by phone using your PIN or by mail. You can specify which creditors can access your file, or you can temporarily remove the freeze entirely so you're able to apply for credit with multiple lenders in order to get the best rate. You can also tell the agency how long you'd like your account to be unfrozen.

Fees for temporarily unfreezing an account can run from $2 to $12 each time the freeze is lifted. States with no fees include Delaware, Indiana, North Carolina, Tennessee and, if the request is made electronically, South Carolina; the District of Columbia also has no fees. Lifting a freeze online or by phone using your PIN should generally take no more that 15 minutes.

What's the Downside to Freezing?
If you're a car shopper, it's the inconvenience. It could be a major hassle if you're visiting multiple dealerships over a period of time. And, as previously reported by Edmunds, some dealers want to run a credit report very early in the car-shopping process, sometimes asking you to fill out a loan application before you even take a test drive.

So in theory, you could be paying to lift your freeze a number of times before you make a purchase. In light of the Equifax breach, however, it seems logical that dealerships will be encountering more shoppers with credit freezes and will likely be more willing to delay running a report. This is something you should discuss with the dealership.

Whether or not to freeze a credit file is a decision you'll want to consider carefully. Active car shoppers who are visiting multiple dealerships and test-driving a number of models might feel the additional expense and trouble isn't worth it. But if you've taken the other recommended steps to protect your personal information and want to go the extra mile in protecting your data, a credit freeze could give you a bit of extra peace of mind.