Be ready to temporarily lift any security freezes you may have put in place after the Equifax data hack.
A credit freeze, in contrast to a credit monitoring service, stops potential creditors from checking your credit record and approving new accounts to be opened in your name.
When you apply for a loan or a credit card, be prepared to have to unfreeze your credit record. You can also be asked to lift your security freeze by others, such as your bank.
Why do banks look at credit reports?
Credit reports are examined by banks and credit unions for a variety of reasons.
According to TransUnion, one of the major credit agencies, financial institutions may do a credit check if you sign up for overdraft protection. This might be the situation if you decide to use an overdraft line of credit, which enables you to borrow money to pay for a transaction when your checking account isn’t sufficiently funded.
On the amount borrowed from an overdraft line of credit, you will be charged interest. A bank or credit union might therefore request a copy of your credit report.
According to Bruce McClary, vice president of communications for the National Foundation for Credit Counseling, “the nature of an overdraft line of protection — and the fact that it can extend a good bit beyond the limit of your account — it makes it necessary for lenders to make sure you’re creditworthy before they approve you for that product.”
Even if you choose not to sign up for overdraft protection, a bank or credit union may request a copy of your credit report to verify your identity.
Scott Navarro, senior operations manager at Alliant Credit Union, says that information from credit bureaus “helps us authenticate identity and identify potential hazards based on their established credit history.”
To open a bank account, your credit record must be unfrozen.
Credit reports are not always pulled by all banks and credit unions. Instead, they might request a report from a consumer bureau like ChexSystems, which can determine whether you have a history of bounced checks and poor account management.
Certain sorts of accounts may be the only ones for which institutions pull credit reports. According to Navarro, Alliant doesn’t obtain credit records when you open a CD. However, the Chicago-based credit union may claim credit for the addition of new members and the opening of checking accounts by current members.
Additionally, Ally Bank obtains credit records for some new and current clients. You might need to release your security freeze in order to open an account, depending on your specific situation.
The bank issued a statement saying, “We assess the customer’s application and if certain requirements are met, we will proceed with the account opening without lifting the customer’s credit freeze.” However, “if we feel that further verification is necessary, we will contact the client directly and may ask the customer to lift the freeze for a brief period of time to enable our customer’s identification to be confirmed.”
Ask your bank if you need to unfreeze your credit report before applying for an account. According to John Ulzheimer, credit expert and CEO of the Ulzheimer Group, if your report is unavailable, your application may be delayed or put on hold.
Additionally, you want to find out which credit bureaus your bank uses. Experian, TransUnion, and Equifax are partners with UFB Direct, an online bank. Before opening an account, you would need to temporarily unfreeze all three of your credit reports if you have done so.
You could also inquire as to whether your bank pulls your credit softly or firmly. Your credit score won’t be impacted by a light pull. However, depending on the other credit queries on your record, a hard draw might affect it, according to McClary.
How to deactivate a credit freeze
If you’re getting ready to open a bank account while your credit report is frozen, Ulzheimer and McClary advise doing some advance planning. Before beginning an application, submit a request to unfreeze it at least 24 to 48 hours in advance.
Locate the PIN that you entered to place the freeze. Then, to temporarily defrost your credit report, go to each credit bureau’s website or give them a call. You can choose whether you want the freeze released for a specific lender or how long you want your credit information to be unfrozen.
