There are three companies that every consumer should know about: Equifax, Experian and TransUnion. These companies collect information and maintain credit reports on every person who has ever used any form of credit. This information is valuable, and by controlling who sees it, a consumer prevents others from using this information to her detriment.
When you apply for new credit, such as a a new loan or credit card, your lender checks your credit report to determine what kind of borrower you are. If you've frozen your credit reports, the lender cannot discover that information. When this happens, the lender will not be able to grant your application regardless of your credit history. When you contact a credit reporting agency and order it to freeze your credit report, this effectively prevents you from opening new credit lines. However, the freeze is not permanent, and you can later have it removed.
A credit freeze stops your ability to get new forms of credit, but that isn't necessarily a bad thing. If, for example, you suspect you have been the victim of identity theft and that someone else is using your personal information to take out loans in your name, a credit freeze prevents further attempts and prevents further damage to your credit report. Credit freezes also prevent others from using your credit cards, and if you know you don't want to get a loan, this tactic can prevent identity theft in the first place.
The laws that govern security freezes differ between states, and not all states have laws that guarantee you the right to freeze your reports. However, the three credit reporting agencies allow voluntary credit freezes. To do this, you have to contact the agency whose report you wish to freeze, either over the phone, in writing or online. You must typically pay a small fee to freeze your reports or to later unfreeze it.