Suze Orman Says It Pays to Freeze Your Credit. Here’s Why

It could buy you some peace of mind.

It's an unfortunate fact that incidents of identity theft are growing increasingly common. Criminals have gotten better at stealing personal data and using it to benefit themselves financially, all the while putting consumers at risk of credit score damage and financial losses.

If a criminal gets a hold of your Social Security number and other pieces of identifying information, they might manage to open up a new credit card account in your name, make charges against it, and leave those bills unpaid. Even if you're able to prove that those charges weren't made by you and that you've been a victim of identity theft, it could take time to reverse the credit score damage caused by those late payments.

That's why some financial experts will tell you it's smart to just freeze your credit. Doing so prevents criminals from being able to open a new account in your name.

In a recent podcast, financial guru Suze Orman suggested that consumers look at freezing their credit. Her logic is that it offers a nice layer of protection, and you can always unfreeze your credit as needed. But while her advice is solid, you should be aware of the pitfalls of a credit freeze.

Be careful when freezing your credit

If you freeze your credit, it means a criminal won't be able to open a new account in your name. That's because when you apply for a new personal loan or credit card, the lender or issuer must run a hard inquiry on your credit report to see if you're a viable borrower or not. A credit freeze makes it so they can't see your credit report, thereby halting the application process.

But putting a freeze on your credit is a mixed bag, because when the time comes for you to apply for a loan or credit card you actually do want, you might have a hassle on your hands. You can unfreeze your credit using a PIN you're assigned when you put that freeze into place. But if you lose that number, you might have to send over identifying documents by mail to the credit bureau in question to get your credit report unlocked. And that could delay your credit card or loan application.

Some bureaus don't require you to use a PIN to unfreeze your credit. But if you forget your password to their websites, you might have a similar problem on your hands.

Also, while a credit freeze will prevent new accounts from being opened in your name, it won't prevent criminals from accessing existing accounts. So for example, if you have a credit card with a $5,000 spending limit and a criminal gets a hold of that number and your login details, they might access your account and rack up $5,000 worth of charges, leaving you with a mess on your hands.

Should you freeze your credit?

Orman's advice to do a credit freeze makes sense to a large degree. After all, you might as well have that layer of protection.

But if you're going to freeze your credit, store your PIN securely so you can undo that freeze as needed. And also, recognize that credit freezes can only do so much to keep your identity safe. You'll need to be vigilant about checking your existing accounts for fraudulent activity, even if you decide to move forward with a credit freeze.