The Fed Just Cut Rates — Here’s How to Make the Most of It (Plus: How to Freeze Your Credit)

10:54Elizabeth Ayoola:To all the winners, we will follow up via email so that you can get your goodies. Okay. So keep refreshing your email. We'll be with you soon.

11:01Sean Pyles:All right. In a moment, this episode's money question. Stay with us.

11:11Elizabeth Ayoola:Today's episode is sponsored by Quince.

11:14Sean Pyles:The best summer pieces are the ones that you keep ending up wearing on repeat. Comfortable, versatile, and somehow right for almost every occasion.

11:21Elizabeth Ayoola:And that's exactly why I love Quince. They make elevated essentials and they use premium materials like European linen, organic cotton, and washable silk without the traditional retail markup.

11:32Sean Pyles:Quince's 100 % European linen pants, dresses, and tops are the pieces that you'll reach for all summer long. They're lightweight, effortless to style, and start at just$32.

11:41Elizabeth Ayoola:And if you like denim, their denim is soft and comfortable, and their organic cotton sweaters are perfect for layering when evenings start to cool down.

11:49Sean Pyles:I recently got some European linen sheets for my bedroom, and they are so cozy, and they really do get softer every time I wash them.

11:55Elizabeth Ayoola:It's summertime. Of course, it has been blazing hot, so I've been spending time by the pool, and I have been rocking the bathing suit that I got from Quince. It is so washable, the fabric is so light, and it feels like such good quality.

12:06Sean Pyles:With Quince, it's not just the apparel. Quince also offers elevated essentials for your home, from bedding, like I mentioned, and bath, to kitchen essentials and furniture.

12:14Elizabeth Ayoola:Make your summer wardrobe feel easier. Go to quince.com slash smartmoney for free shipping on your order and 365-day returns. It's now available in Canada too.

12:25Sean Pyles:That's quince.com slash smartmoney for free shipping and 365-day returns. quince.com slash smartmoney. Today's episode is sponsored by Shopify. If you've been sitting on a business idea, Shopify makes it easy to make it happen. Everything you need to start selling is included and ready from day one.

12:44Elizabeth Ayoola:Including the moment your first customer is ready to pay. Shopify checkout helps more of them finish their purchase. And when they come back, their details are already saved. And one tap and they're done.

12:55Sean Pyles:Because Shopify handles the setup and checkout, you have more time to focus on growing your business and the tools to do it.

13:01Elizabeth Ayoola:Shopify powers millions of businesses worldwide, from household names like Mattel and Gymshark to small businesses just getting started.

13:09Sean Pyles:With Shopify, nothing stands between your idea and a real business. So go make it one.

13:14Elizabeth Ayoola:Start your free trial at shopify.com slash smart money.

13:18Sean Pyles:That's shopify.com slash smart money. We're back and answering your money questions to help you make smarter financial decisions. This episode's question comes from a listener's text message. Here it is. I've been listening to Smart Money for a few months now and learning from the topics the show discusses. I was curious to learn more about credit freezes. If somewhere is running a soft credit check, like setting up internet service, should I have my credit frozen?

13:42Elizabeth Ayoola:To help us answer this question, on this episode of the podcast, we are joined by Amanda Barroso, an authority on credit. Hello, hello, Amanda. Hey, too. Thanks for having me on.

13:53Sean Pyles:Great to have you back, as always, Amanda. So let's start with a little credit freeze 101. Can you give us the simple explanation of what a credit freeze is? A credit freeze is like putting a big padlock on your credit reports. Think about it as like that big lock that you're putting on your financial information. So you have credit reports with Experian, Equifax, and TransUnion. Those are the three major credit bureaus here in the U.S. And those reports show things like your loans, your credit cards, payment history, even things like previous addresses and employment history. There's a lot there.

14:27And so lenders will look at your credit reports when you apply for a credit card, a loan, or sometimes even a new phone plan. And as the listener suggested, a utility company, they're setting up their internet service. It's not uncommon for those companies to also look at someone's credit report. So when you freeze your credit, you're telling the credit bureaus, again, the companies that are keeping these files, not to let anyone see them unless you say so. So that way, if a scammer tries to open an account in your name, they can't because lenders can't check your report without your permission.

15:02So there's kind of like this block there that prevents them from doing that. The thing about credit freezes is you can unfreeze or sometimes it's called thaw. You can thaw your credit at any time. So if you want to apply for credit, it's free to thaw it and it's free to freeze it. And the other thing about this is that it doesn't hurt your credit score. So really, there's a lot of security benefits all around. And again, remember, it just makes it harder for identity thieves and scammers to use your personal information.

15:30Elizabeth Ayoola:Well, since we're on the topic of identity theft, it is a big issue. In 2024, the FTC received over 1.1 million identity theft reports online. Now, this number could potentially be lower, I would assume, if people froze their credit more. What are some scenarios where it makes sense, Amanda, to get your credit frozen? Listen, every scenario, really and truly, NerdWallet recommends everyone freeze your credit. OK, it's one of the easiest ways to protect yourself against identity theft. And it's free. Another huge, you know, it fits in the budget, right? Our personal information is probably out there for bad actors to steal.

16:08We get emails and stuff all the time about data breaches and data leaks, and it's only becoming more common. So the only time you want your credit reports to be thawed or unfrozen is if you're about to make a big purchase like a car or a home purchase, something like that.

16:23Elizabeth Ayoola:Well, I'm curious to know now, Amanda, how frequent or common are credit freezes? This is a good question, and it's a really hard one to answer because credit profiles are frozen and then thawed or unfrozen all the time, right? People are switching that on and off depending on their financial activity. And on top of that, there's not one place that measures this data. But I did come across a public interest research group estimate that only 10 to 20 percent of consumers have frozen their credit files. So that's just a really small chunk of American consumers.

16:55Sean Pyles:That's a frustrating number because raising your credit is so easy and it's one of the best protections against the fraud that we mentioned earlier because it's not whether your information is out there. We should all assume that it is out there and that it's just a matter of time before someone tries to take advantage of it. So please, everyone, just freeze your credit. Amanda said it's free. It's easy. So please do it. All right. So it's important to note that credit freezes are different from fraud alerts and also different from what's called a credit lock. So why would someone choose one over another?

17:25Sean Pyles:And can you just lay out what each of these things is? There are a few key differences. And I think they're important to note because they sound like similar things, right? But they're kind of performing different functions. The first is a credit freeze. So again, blocks all access to your credit reports, but a fraud alert just warns lenders to double check who is applying. So for example, I got a notification through Experian or something that my information was found on the dark web. So I could place a fraud alert just as a safety precaution to just let people know, hey, if somebody is trying to do something funky here, you need to let me know.

18:01The second thing, a credit freeze must be lifted before you open a credit account, right? So if I'm going to go open a credit card, my credit cannot be frozen. That lender needs full access to my credit reports. But with a fraud alert, it doesn't block you from applying. So if you have that in place, you can still buy a car, buy a house, all these things. It's not going to prevent you from doing that. And the third thing is a credit freeze lasts until you remove it. But a fraud alert typically lasts about one year. That timeline might be extended to seven years. If you are a victim of identity theft, they'll extend that for you.

18:34It can be renewed after that year is up. But that's kind of the timeline that you're working with there. I think the last thing that's important to know is that with a fraud alert, you can alert one of the credit bureaus and they'll contact the other ones on your behalf. That's really nice, right? But with credit freezes, and maybe this is sort of a blocker for people, you have to contact each bureau individually. And the processes are similar, but not exact. So you kind of have to pay attention to how they want you to go about that. So the third kind of credit protection out there is one that's offered by the credit bureaus.

19:06and it's called a credit lock. This is a product for sale. Most of the time it's for a monthly fee. There's some cases where it's free and offers you the opportunity to lock and unlock your credit with the push of a button. So if you have the Experian app or the TransUnion app or the Equifax app, you can go in and, okay, I wanna make a buy now, pay later purchase. I'm gonna unlock my credit, make the purchase, let it go through and then lock it back up. And you're not beholden to sort of the timelines of the credit bureaus.

19:35Sean Pyles:So you talked about how each of these forms of protecting your credit has its own function and purpose, right, Amanda? And candidly, as best as I can determine, the function of a credit lock is to line the pockets of the credit bureaus. That's my take on this because credit freezes are free and locks are not free. And you have to pay for it and then you get less protection than you would with a credit freeze. And I recently had to thaw my credit profiles ahead of applying for a new credit card. and one of the credit bureaus was pretty aggressively pushing credit locks. And I found the entire process really frustrating.

20:10Sean Pyles:I actually couldn't navigate to the credit freeze page without Googling this credit bureau plus credit freeze and then I could get to it. And for folks who might not know the difference between a lock and a freeze, it'd be really easy to select the wrong product and end up paying for something that you don't actually need to pay for. And by the way, freezing and unfreezing credit doesn't take that long. I unfroze all of my credit profiles at the three bureaus in under 10 minutes by going online. You mentioned that it might be easier to go into an app and just unlock your credit with a button. And that, again, to me, is a form of malicious design from the credit bureaus.

20:43Sean Pyles:They could make unfreezing just as easy, but then they wouldn't get money from you, right? I think you're exactly right. And I think having these credit lock and credit freeze kind of being so similar in name, people are thinking, because I'm paying for this service, Maybe it's actually a better form of protection, right? When we know it's really not. It's worse. Credit freezes are required by law to perform certain functions, whereas credit locks are not. Sean, I think your point about like logging into your profile online and like having a hard time finding out where I'm supposed to go to actually unfreeze or freeze my credit, that's a real issue.

21:17Pay attention to the language that's being used. And again, for the free service that we are recommending here at NerdWallet, you're going to look for credit freeze.

21:25Elizabeth Ayoola:I'm going to do my confession of shame and tell you guys I do not have a credit freeze. So this speech, I know, I know, but we listen and we don't judge. That's true. That's true.

21:36Sean Pyles:I'm judging just a little bit, but you just correct this and that will be so great.

21:41Elizabeth Ayoola:And let me tell you what I'm going to do. I'm going to first correct it hypothetically. So let's say I go ahead and get a credit freeze. Amanda, tell us who can still access my credit report. The listener wants to know whether they should have their credit frozen if a company is doing a soft credit check. So would that impact their chances of being approved? So first and foremost, you should know you will always be able to access your credit reports even if your credit is frozen. So that's really important to know. There are other people who can access your frozen credit file and they are allowed to by law.

22:10Like this isn't some malicious thing they're allowed to. So, for example, existing creditors that you have a relationship with, like credit card issuers or your mortgage lender, are able to see your frozen credit reports. Government officials might be able to see them if they're enforcing a court order, child support, something like that, or a warrant. Insurance companies and utility providers are allowed to look at your frozen credit reports so they can kind of assess who they offer policies to, right? They're looking at it and kind of getting a lay of the land there. A credit freeze won't prevent a company or even a potential employer from conducting a soft inquiry, which I think is what the listener is asking about.

22:48These are sometimes it's called like a soft pull. This is when somebody is inquiring into your credit, but it's not going to ding your credit score. It's not going to show up on your credit reports in the same way that a hard inquiry would. So they should still be able to verify your credit and get the other information that they need in a way that's not going to harm your score at all.

23:06Elizabeth Ayoola:I think two of the best things that I've heard so far are one, that a credit freeze is free. And two, as Sean said, well, it took him under 10 minutes. So talk us through the steps, Amanda, of how to place a credit freeze. So you need to reach out to each of the bureaus separately. So again, these are Experian, Equifax, and TransUnion. Those are the three major ones, okay? So each bureau has its own process. And luckily, we have a guide on our website that has step-by-step instructions for each of the three bureaus. So turn to the nerds. We've got you covered. Follow our steps and we can get you to the end result pretty quickly.

23:40You can freeze your credit by phone, by mail or online. Online is obviously the fastest method. Sean was talking about that. And you'll need similar information for all three bureaus. So your social security number, your date of birth, your current address. In some cases, you might need a copy of a government issued ID or bank or tax statement, something like that. especially on the phone, they might ask you for extra identifying information. So you should just be prepared if you choose that method. You might have to answer a few more questions.

24:11Sean Pyles:And I would recommend folks do this online because it is just going to be so simple and fast once you have your account set up with the credit bureaus. But I'm wondering about how long it might take for someone doing this on the phone or snail mail. I imagine it'd be a lot slower than 10 minutes. Yeah. Okay. So if you request a freeze by phone or online, the bureaus are required by law to place the freeze within one business day. If you mail in your freeze request, the timeline is three days from when they receive it. But please, please, please, if you choose the mail option, make sure you use certified mail so that you can get that confirmation that your request was received.

24:46You know, you're putting some sensitive information in the mailbox, so we just want to make sure that you know that it was received.

24:53Sean Pyles:Okay, let's talk a little bit more about thawing, which I mentioned I did ahead of applying for a new credit card. When I thawed my credit, I just had it thawed for one whole week just to give the credit card company plenty of time to review my information. Are there any other pieces of information that you think folks should know about credit thawing or would they need to have any other information on hand? So if you've set up an account online or you have the app, which we highly recommend using the app because we know that apps are regularly updated for security measures. You can have a complex password that's saved in your phone and can even use biometric accessibility features to scan your face and get in there.

25:31I know for me, that's a huge help because who can remember all these passwords, right? The TransUnion app, the Equifax app and the Experian app. So once you have your account set up, login information is probably what you'll need to get in and unfreeze using the app or online. If you are freezing your credit over the phone, again, date of birth, social security number, address are the most likely things you're going to be asked for. And again, a one hour turnaround time if you are requesting by phone or online. Probably online will be a lot faster than that, but I think they give themselves a little bit of wiggle room.

26:05If you're mailing your request to each bureau, you're going to have to follow the instructions provided by each bureau. Again, we have step-by-step guides, links even to some of the forms. Sometimes credit bureaus will have a printable form. For example, Equifax has this that you'll have to download and complete and mail in along with the requested materials. So you're going to really want to pay attention to any requirements like that before you, again, put that in certified mail and send it on its way.

26:30Elizabeth Ayoola:Now, this all sounds like a pretty straightforward process to me, but what are some common pitfalls that people can avoid when doing a credit freeze? One of the biggest mistakes is just like forgetting you need to freeze your credit at all three bureaus. So you freeze it at Equifax, you think you're good, but something happens. Somebody accesses your Experian or TransUnion credit profiles, and now all of a sudden you're still left yourself vulnerable. So making sure that you've got all three credit freezes in place is important. I think another mistake is just like forgetting to thaw your credit before a purchase.

27:03I mean, mostly that's just like an inconvenience. You know, you go to purchase a new car, you're wheeling and dealing, right? And the person goes back to like run your credit and see what kind of deal they can offer and they can't access that. Just probably slows things down a little bit, but it can be a little bit frustrating. Sean, you were saying you knew you were going to open up this credit card so you were able to go in, thaw your credit for a predetermined time, upon which when that one week was over, the freeze automatically went into place. Something like that kind of takes the mental load out of this.

27:33Misplacing passwords, especially if there's a data breach or something and you're in the habit of frequently changing your passwords, forgetting that password can also be kind of a hassle. So a digital password manager or something like that is a good way to keep those complex passwords really protected. I think the last thing is more just like a misunderstanding about what a freeze can do or what a freeze can protect you from. A credit freeze doesn't prevent all fraud, right? Like somebody could still get my credit card information and use my credit card and spend $10 ,000 at the jewelry store or something like that, right?

28:06So you're still going to need to monitor your existing accounts, like your credit cards, for fraudulent purchases. This is just preventing, again, people from opening new accounts in your name. So again, getting in the habit of checking your reports and checking those expenses frequently is going to pair nicely with the freeze.

28:22Sean Pyles:Have you frozen your credit? Do you keep it frozen on the regular? Listen, mine is frozen like Elsa up and frozen. I have little small kids. We are not letting it go. We are shutting it down. We are frozen. Really and truly, most of my major purchases are like behind me. I've bought a house. We have two cars that we plan to just ride until the wheels fall off. Being in the financial space, I frequently see how many data breaches and security breaches are happening. You know, every few months, it seems like there's something else. So I just like to keep it frozen for a little bit peace of mind.

28:55And I get all my family members about it. Every time I see my brothers and sister-in-law, I say, have you frozen your credit? I'm like the grumpy old lady. But I do really think that it's such an important and again, free way to give yourself a little bit of peace of mind. And these days, free peace of mind does not come easy.

29:11Sean Pyles:Absolutely. And I think folks should think about credit as just a tool that they can deploy. And when you're not using this tool, you want to make sure it's in a secure place, locked away so that people that you don't want to have access it can't access it. You're exactly right, Sean. Well, Amanda, thank you for coming on and telling us everything we need to know about credit freezes. I love coming and chatting with you guys. Thanks for having me. I'm sure we'll have you back on soon. Thanks. Remember, listener, that we're here to answer your money questions. So turn to the nerds and call or text us your questions at 901-730-6373.

29:39Sean Pyles:That's 901-730-NERD. You can also email us at podcast at nerdballet.com. Join us next time to hear about how you can support your aging parents if they don't have much saved for retirement. Follow Smart Money on your favorite podcast app, including Spotify, Apple Podcasts, and iHeartRadio to automatically download new episodes.

29:57Elizabeth Ayoola:And our brief disclaimer, we are not your financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes, and it may not apply to your specific circumstances. This episode was produced by Tess Viglin and Anna Hawalski. Hilary Georgie helps with editing. Nick Karisimi mixed our audio. And a big thank you to Nerd Wallace editors for their help.

30:24Sean Pyles:Hey, it's Ryan Reynolds here from Mint Mobile. Well, now, I was looking for fun ways to tell you that Mint's offer of unlimited premium wireless for$15 a month is back. So I thought it would be fun if we made$15 bills. But it turns out that's very illegal. So there goes my big idea for the commercial. Give it a try at mintmobile.com slash switch. Upfront payment of$45 for three months,$90 for six months, or$180 for 12-month plan required. $15 per month equivalent. Taxes and fees extra. Initial plan term only. Greater than 50 gigabytes may slow when network is busy. See terms.