Why you should freeze your child's credit

For years, identity theft expert Eva Velasquez warned parents that freezing their children's credit reports was difficult, problematic and probably unnecessary.

Velasquez, chief executive officer of the nonprofit Identity Theft Resource Center, has since changed her mind. Or rather, the sheer volume and severity of database breaches — including last year's breathtakingly huge compromise at Equifax credit bureau — changed it for her. She now recommends that parents "strongly consider" credit freezes for their kids.

"The landscape has changed," Velasquez says.

What hasn't changed, unfortunately, is the difficulty of getting a credit freeze for someone younger than 18. Sometimes it's impossible, depending on where you live.

Credit freezes allow you to restrict access to your credit reports, preventing identity thieves from opening new, fraudulent accounts in your name. Credit freezes have been available to U.S. adults since 2007.

Children, however, typically aren't supposed to have credit reports. If they do, someone has probably stolen their identity. All three major credit bureaus allow parents to freeze credit reports when a child's identity has been used by a thief.

Many states, though, don't require the bureaus to offer credit freezes if a child's identity hasn't already been compromised. That could change: A Senate-approved bill to loosen Dodd-Frank banking regulations includes a clause that would require credit bureaus to create files for those under 18 at a parent's request. Once a file is created, it can be frozen.

The states that currently require bureaus to create reports for those under 18 in response to a freeze request are Alaska, Arizona, California, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, New York, North Carolina, Ohio, Oregon, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington and Wisconsin, according to the National Conference of State Legislatures.

Only one credit bureau, Equifax, will create and freeze a report at a parent's request regardless of where the parent lives.

Equifax isn't being cooperative as a mea culpa for its sins. This was the bureau's policy even before last year's breach , when thieves made off with about 148 million people's information including names, birthdates, Social Security numbers and some driver's license numbers.

Experian and TransUnion, the other two major bureaus, still insist that parents shouldn't rush to shut down their kids files. "A proactive file freeze is a drastic solution that we only recommend when a child's identity is being used fraudulently," is how TransUnion puts it.

That stance is, to put it mildly, outdated. No one should have to wait to become a victim when prevention is possible.

And children may be at greater risk than adults. Carnegie Mellon University's CyLab found the identity theft rate for kids was 51 times higher than that for adults, according to a 2011 report. The report found 10.2 percent of the 42,232 children studied from 2009 to 2010 had someone else using their Social Security numbers. The rate for adults was 0.2 percent.

The youngest victim was five months old. One teenager had over $725,000 in debt on 42 credit accounts opened by eight people. The debt included mortgages, auto loans and collection accounts for medical bills, utilities and credit cards.

Identity thieves target children because the crimes can go undiscovered for years. Often bogus credit histories don't come to light until the victims apply for their first credit card, apartment or job — and get rejected. Then, they can face huge battles to clear their names after years of credit abuse.

Creating a credit report for those younger than 18 can create problems of its own. The report links the child's name to a Social Security number, information criminals could use for other kinds of fraud that don't involve credit checks, such as employment or medical identity theft.

Other issues are that freezes for children under 18 often cost money to create ($3 to $15 per bureau, depending on the state) and to lift ($2 to $12), they can't be set up online and parents have to keep track of the personal identification number needed to lift the reports when the child is older than 18 and needs credit.

A freeze also won't typically prevent the child's Social Security number from being used for synthetic identity theft, where thieves use real and fake information to create new identities.

Velasquez in the past discouraged parents from trying to create credit reports when they didn't exist, fearing it would "muddy the waters." But given the rising risks, parents should consider doing what they can, including credit freezes, to protect their kids, Velasquez says.

"The good outweighs the bad now with all these data compromises," she says.

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This column was provided to The Associated Press by the personal finance website NerdWallet .

Liz Weston is a columnist at NerdWallet, a certified financial planner and author of "Your Credit Score." Email: lweston@nerdwallet.com Twitter: @lizweston.