When You Should Freeze Your Credit and How to Do It

Maintaining a good credit score is really super critical for so many different things in our lives. Credit scores show if we’re a good borrower which is important when we go to apply for credit cards, loans, mortgages, and even rental applications. A good credit score can get us a lower interest rate and provide general flexibility —and more options — in life. 

In short, you don’t want to eff around with your credit score. It’s like the adult equivalent of your ACT score. A lot is on the line. 

Fun story, someone attempted to steal my identity last summer. Thank goodness I caught it before anything too terrible happened. But going through that allowed me to learn about a VERY important tool that I didn’t know about before and that you need to know about too.

Today I want to tell you about freezing your credit. Freezing your credit is free and just one tool to use to protect our credit scores and to protect us from potential scammers!

What does it Mean To Freeze Your Credit?

A credit freeze is like putting a lock on your credit reports. It prevents scammers from accessing your credit reports and trying to open accounts using your personal information.

Here's how it works: Let’s say someone’s snagged your credit card number and decides to get frisky with it and open some shiny new lines of credit in your name. When someone applies for credit in your name, the lender or card issuer typically checks your credit reports before making a decision. 

If your credit isn’t frozen, they can check into it to their heart’s desire - and it’s basically a free for all. If it’s frozen though, they can’t look at your credit history without your permission! It's like putting those reports in a top-secret secure vault. The potential creditor can't access the information needed to approve the application and will also alert them that this probably isn’t you filling it out anyway. Boo-yah, suckers! 

Credit freezing is a powerful tool to protect your financial data.

How to Freeze Your Credit to Protect Your Financial Data

So how do you freeze your credit? 

Step 1: Go to Experian, TransUnion and Equifax’s websites (yes, do it at all of them!)

Step 2: Create a FREE account

Step 3: Toggle the button that says “Freeze my credit”

 …that’s literally it!

The key thing to remember though is to UNFREEZE when you do want to take out a loan, or it'll be denied (because the freezing is doing its job!). To unfreeze, you just have to toggle that button back from freeze. 

Easy peasy, lemon squeezy.

Now note that these websites will try to get you to pay along the way, but this is a totally free service. Just skip past all that stuff if you don’t want to pay.

How is a Credit Score Calculated

Okay, so you know about freezing credit, but to better understand why this is a helpful tool, let's take the time to understand why this number is important and how it's calculated.

Credit scores are calculated using many, many different types of data in your credit report. We can group this data into five categories: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%).

Payment history (35%)

The most important factor in a credit score is hands down your payment history. Lenders want to know if you have a history of making payments on time or not. A single missed payment can drastically affect your score! This portion essentially helps lenders determine the amount of risk they take when extending a line of credit to you. This is why automating at least the minimum payments on all cards is very helpful. This way you will never accidentally miss a payment! And if you do accidentally miss one, call your credit card company ASAP and ask them if they are willing to waive the fee and remove the mark so it doesn’t affect your credit!

Amounts owed (30%)

This can be a little tricky…having various different types of debt with various amounts doesn't necessarily translate to poor credit. What this really means is how much credit you are utilizing. You should aim to use no more than 30% each month. So if you have $10,000 in available credit, you don't want your balance to go above $3,000. If you have $20,000 in available credit, keep your balance below $6,000. WHY? If you are using a lot of your available credit, this may be interpreted as you overextending yourself. If you have a big purchase, see if you can split the payments up and pay your credit card in between each.

Length of credit history (15%)

Having a long history of credit is good! But what credit bureaus specifically look at is the age of your oldest account, the age of your newest account and the average age of all your accounts. So don't go closing those old cards! If they have a fee on them, call your credit card company and ask them if you can downgrade to a free version. Win win!

New credit (10%)

Be careful about how much credit you open at once! It can look risky if you are opening several accounts in a short amount of time. Try and spread this out!

Credit mix (10%)

It's good to have a variety of the types of credit you have: credit cards, loans, mortgages, etc. You don't need to have one of each, but diversification is good! But also: don't go taking out debts just to increase diversification. IE if you paid off your car and no longer have a car loan, that doesn't mean you need to go out and buy a new car. Fun story: my credit score dropped 61 points after paying off my car loan! It's slowly recovering and yours will too.

Wrapping Up

Credit can be really confusing. But only because so many of us were not taught about these things. That’s why I put together my Debt and Credit course. It’s everything I wish I had learned earlier rather than later and will even teach you all the strategies to pay off debt for once and for all.