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What it means when your bank wants you to unfreeze your credit

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A credit freeze is a security measure that prevents anyone else from opening accounts in your name, but it also means that you cannot open any new accounts while the freeze is active.

If you’re worried that your information may have been compromised, you can initiate a credit freeze. This blocks new creditors from reviewing your credit report. The Equifax breach in 2017 is an example of a situation where many people had their information compromised.

Why banks review credit reports

Mostly, banks don’t check credit reports when someone opens a checking or savings account, but in some cases, they might need to do so.

TransUnion, a major credit bureau, states that financial institutions may review your credit when you sign up for overdraft protection. This applies specifically if you choose an overdraft line of credit, which permits you to borrow funds to complete a transaction when there aren’t adequate funds in your checking account.

If you take out an overdraft line of credit, the bank or credit union may check your credit report because you will be charged interest on the amount borrowed.

Bruce McClary, who is the vice president of communications for the National Foundation for Credit Counseling, explains that due to the overdraft feature’s unique nature, which allows it to go beyond your account limit, lenders need to verify your creditworthiness before approving you for it.

Banks and credit unions have the right to check your credit report for the purpose of verifying your identity and reviewing your financial profile, even if you don’t sign up for overdraft protection.

Unfreezing your credit report to open a bank account

It is common for banks and credit unions to check consumer reports, such as ChexSystems, instead of credit reports. These reports indicate if you have a history of poor management of your bank accounts, such as bouncing checks.

Sometimes, banks may require extra verification. For instance, Ally Bank may check the credit reports of certain new and existing customers. If your situation calls for it, you’ll have to remove your security freeze prior to setting up an account.

According to a statement from the bank, they will evaluate the customer’s application and if it meets certain requirements, they will open the account without the need for the customer to lift their credit freeze. However, if the bank needs more verification, they will contact the customer directly and may request that the customer temporarily lift their freeze in order to confirm their identity.

It is advisable to check with your bank about the necessity of unfreezing your credit report before you apply for an account. If your credit report is not accessible, John Ulzheimer, who is a credit expert and also the president of the Ulzheimer Group, warns that your application might face delays or be put on hold.

It’s important to confirm with your bank about the credit bureaus they work with. For instance, UFB Direct, an online bank, partners with Experian, TransUnion and Equifax. In case you had put a freeze on your credit report across all these bureaus, you’ll need to lift all of them temporarily before you can open an account.

It would be helpful to ask your bank if they will perform a soft or hard pull to check your credit. A soft pull won’t harm your credit score, whereas a hard pull might impact it, depending on other credit inquiries on your report. This is another important consideration to keep in mind.

How to unfreeze your credit report

Please locate the PIN number that you utilized while implementing the credit freeze. Afterward, either visit the individual websites of the credit bureaus or use their given phone numbers to temporarily unfreeze your credit report. You have the option to choose the duration for which you want to keep your credit information unfrozen or whether you want to lift the freeze for a specific lender.

Experian states that if you request to unfreeze your credit report online or over the phone, it will usually be unfrozen within an hour. However, if you request to unfreeze it by mail, it may take up to three days.

The cost of unfreezing credit reports differs depending on the state and credit bureau. Typically, it is between $3 and $10, but in certain states, it may cost up to $12.

Bottom line

When you apply for a new account or a product like overdraft protection, financial institutions may check your credit report to confirm your identity or evaluate your ability to repay. Before applying, it’s essential to check with your bank if they need an unfrozen credit report and which credit bureaus they use. You can temporarily unfreeze your report by requesting the credit bureau to do so.

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