A Personal Credit Freeze and the Small Business Impact

November 6, 2018

The Equifax data breach this spring left millions of people vulnerable when personal information was stolen. Experts sought ways to prevent identity theft or minimize its effects, including by freezing credit. This action prevents accounts from being opened in your name.

While many people went this route, some steered away from credit freezes because of concerns about how it would affect their small business. To learn more about this concept, read the following, courtesy of the National Association of Credit Management ( and prepared by Experian, one of several credit reporting agencies.

Experian Advice

Following some high-profile data breaches, consumers are being urged to monitor and lock or freeze their credit or place fraud alerts on their credit profile. For small business owners, there is currently no mechanism for freezing a business credit file, but there are options, like monitoring the business credit report or placing a fraud alert on the business credit profile.

With concerns about criminal hacking or identity theft, small business owners need to know how to protect themselves and their businesses. For consumers, credit freezes are sometimes used in the case of identity theft to help prevent the thief from obtaining credit in the individual’s name. For businesses, protecting credit is different and a little more complicated. So let’s define personal versus business credit before we get our freeze on.

Personal Credit Versus Business Credit

Personal credit can be defined as using credit cards, retail store cards or a personal guarantee for loans, such as car loans or home mortgages. Business credit is used to finance equipment or pay for goods and services in the name of the business. You might, for example, pay for business events using a company credit card.

Many business owners may use personal credit when they are starting their business. They might use personal loans from friends and family or deposit income from the business to a personal checking account. As the business matures, the business starts to establish a business credit history through accounts opened in the business name. Over time, more transactions start to grow the business credit profile and score.

  • Keeping business and personal credit separate offers some important advantages:
  • Tax time can be simpler because the business expenses and deductions are already separated from personal finances.
  • Good business credit means your business can borrow money at lower interest rates.
  • Good business credit also allows you to obtain company credit cards and control the spending limits for employees.
  • If your business fails or experiences losses, your personal credit is protected.
A Credit Freeze, Locking Credit and Fraud Alert

Freezing and locking are different but similar. Freezing your personal credit is the standard process of notifying Experian that you want to freeze your file, providing the necessary documentation and fees (if you are not a fraud victim) and being issued a PIN that you must provide each time you want to “thaw” your credit file. It’s the state-mandated regulatory process and is done online, by telephone or by mail.

Locking your credit file is an instant mobile service provided as part of a consumer’s premium membership in IdentityWorks, Experian’s personal credit monitoring service. It allows a person with a membership to instantly “lock” or “unlock” their credit file using their mobile device.

When “freezing” credit, no one, including you, a lender, a card issuer or a thief, can open any new credit accounts in your personal name. Credit freezes may involve fees and last until removal is requested by the personal credit owner. It could also be expensive to lift the freeze at all three credit bureaus to open an account.

Credit fraud alerts allow the consumer or business to place a statement on their report to prompt the creditor to take verification actions before extending credit. There are two levels of fraud alert. An “initial security alert” lasts 90 days on the consumer’s report and asks lenders to verify the person’s identity before granting credit. An “extended fraud victim statement” remains for seven years on the consumer report or until the consumer asks that it be removed. There is only one level of fraud alert on a business credit report and it remains indefinitely or until the owner requests it be removed. Fraud alerts are free.

The Business Side

The bottom line is that business credit cannot be “frozen” like consumer credit.
Different laws regulate business credit versus consumer credit. As a best practice, business owners should separate personal from business credit as soon as they can and build a business credit profile. To protect the business credit profile, owners can request a fraud alert statement be placed on it, as well as monitor their business credit report for changes that look suspicious.
Just as a consumer should request their free annual credit report and monitor any activity on their reports, the same reasoning applies to business credit reporting:

  • The business credit report is used to determine the financial health and credit-worthiness of your company. Be aware of what is on the report and if it is accurately representing your business finances. If it is not, you can request corrections.
  • Fraudulent activity is on the rise, and businesses need to know if their credit has been affected. Fraud can affect cash flow, credit problems and even your business’ reputation. Again, look for unusual activity on the credit report
  • Managing your business credit wisely will help improve your business credit score. Monitoring your business credit report will inform you of key factors that help build your score.

If you believe or have proof that your business has become victim to business fraud and/or identity theft, you should monitor your business credit report. Experian will notify you of changes as well as search the dark web for compromised business data.

You can also place a fraud alert on your business credit report. To do so, send Experian Commercial Relations a signed letter on your company letterhead requesting that a fraud alert be placed on your business credit report and include a brief explanation why. You will need to include the signature of the company’s business owner along with that person’s contact information. Experian will add a message alert to the company’s business credit report asking that the company be notified prior to any lender extending business credit.

In the End

Don’t risk your company’s reputation and ability to grow by ignoring your company’s credit. These simple steps and monitoring tools are important even if your data hasn’t been breached — because you never know when the next hack will happen.


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