If you haven't frozen your kid's credit, you'd better get on that
We all want to protect our children and set them up for the most prosperous futures possible. While we can't ensure they'll all become savvy investors, there's one smart thing we can do now that will help clear their path to financial success: freeze their credit.
Identity thieves often target children, stealing their social security numbers and compromising their future credit. Even if you're not planning on opening up a credit card in your 8-year-old's name any time soon, many financial experts say the best thing you can do to protect your child against identity thieves is to freeze their credit now, which can prevent them from becoming victims and halt any wrongdoing if you discover his or her credit and SS number have already been compromised.
Although credit freezing remains a debatable topic amongst parents and experts, Jay Fleischman, an attorney helping people with credit and debt issues at Consumer Help Central, argues that the sooner you freeze their credit, the better, because most children don't access their credit file, so identity theft may go unnoticed for years and could have a disastrous effect on their future.
“The negative impact of identity theft increases over time, dragging down the child's credit score and making it more difficult to qualify for financing,” Fleischman says. “For children who are applying to college, the costs associated with higher education usually exceed the amount available in federal student loans and grants. Many college students need to take out private student loans to cover the shortfall, and those loans are entirely credit-based. With a credit report that may include numerous accounts taken out by identity thieves, the chances of the child qualifying without a guarantor or cosigner are hindered. In addition, the rate on the private student loan is likely to be higher for those with a lower credit score than for others.”
Credit scores are used not only for extension of new credit, but also by insurance companies and landlords, Fleischman says. Children with compromised credit may not be able to rent a place to live quite as easily, and their insurance rates are likely to be significantly higher than would be the case in the absence of lingering bad debt.
Fleischman provides parents with four of the most important facts he says they need to know about freezing their child's credit:
- A credit freeze does not affect your credit score.
- A credit freeze won't keep someone from opening a new account, applying for a job, renting an apartment, or buying insurance. In order to do so, however, the consumer needs to lift the freeze temporarily to enable the potential landlord, employer or insurance company to gain access so that it may perform a credit check.
- Credit freezes won't prevent identity theft on existing accounts, so parents should talk with their children about ways to monitor bank, credit card and insurance statements for fraudulent transactions.
- A credit freeze won't stop prescreened credit offers, so parents should ensure that their children understand the benefits and risks of taking on debt and opening credit accounts.
Gary Watts, a retired police lieutenant and a current Certified Financial Planner at Alamo Capital, is also a proponent of freezing a child's credit. In order to do this, he says parents need to contact each of the nationwide credit reporting companies:
- Equifax — 1-800-349-9960
- Experian — 1-888-397-3742
- TransUnion — 1-888-909-8872
“You'll need to supply your name, address, date of birth, Social Security number and other personal information,” Watts says. “Fees vary based on where you live, but commonly range from $5 to $10.”
After receiving your freeze request, Watts says each credit reporting company will send you a confirmation letter containing a unique PIN (personal identification number) or password. You should keep the PIN or password in a safe place because you will need it if you choose to lift the freeze.
And, when the time comes to lift or completely remove your child's credit freeze, Watts explains the ins and outs of what to expect:
"A credit reporting company must lift a freeze no later than three business days after getting your request," Watts says. "The cost to lift a freeze varies by state. If you opt for a temporary lift because you are applying for credit or a job, and you can find out which credit reporting company the business will contact for your file, you can save some money by lifting the freeze only at that particular company."