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How do scammers target their victims to misuse their finances? They steal an individual’s information to take new loans or open new accounts in their name without their knowledge or permission. In FY 2023 alone, around 13,530 fraud cases took place in the banking system, of which 6,659 were in the digital payment category. Credit lock and freeze are different ways to protect credit, identity, and personal finances from fraudsters.
This article will cover credit lock vs credit freeze, what they are, how they work, and other essential things you must know.
A credit lock is a faster means to freeze credit as the credit bureaus directly provide these services. An account holder can instantly lock or unlock their credit, sometimes through an app on their smartphone. Some credit agencies offer credit lock with their bundle of products to protect an individual’s identity and improve their creditworthiness.
Credit freeze refers to a temporary limitation placed on an individual’s credit report. During the freeze period, no one can take a new loan or open a credit account, not even the account holder. It is an excellent way to safeguard credit after an instance of identity theft.
Credit lock prevents a finance company from assessing an individual’s credit history and lending new loans in their name. It is a contract between the individual and the credit reporting agency without legal protection. It is quicker and more convenient than a credit freeze, as an account holder can quickly lock or unlock it online. However, the facility costs money, and an individual must enrol in a program with the credit bureau. Since the user can immediately lock or unlock the credit, keeping it locked at all times is recommended. One must unlock it only when they plan to apply for a new credit product.
Also Read: What is a Good CIBIL Score for Personal or Business Loan
A credit freeze, also called a security freeze, seals an individual's credit history to prevent financial fraud or identity theft. It makes credit information inaccessible until the owner removes the freeze or thaws their credit. When a fraudster tries to open a new credit account, the credit freeze prevents the finance provider from accessing the owner’s credit information. Ultimately, it prevents fraudsters from opening unauthorised accounts in an individual’s name without their knowledge. Credit freeze facilities are free for everyone regardless of whether they face fraud.
Many individuals feel confused between credit lock and credit freeze. However, understanding credit lock vs freeze is essential to determine which the right option is:
Parameter | Credit Lock | Credit Freeze |
Purpose | Locks the credit file temporarily, making it inaccessible to credit providers. | Freezes the credit file permanently, making it inaccessible to potential lenders. |
How to Activate | Use an online portal or mobile app to lock the credit file and unlock it when needed instantly. Different credit bureaus have various lock tools to activate. | Contact the credit bureau to freeze the credit file. |
Activation and Deactivation Speed | Instantly locks and unlocks the credit file with a toggle button. | Freezing and unfreezing the credit file takes a few business days to complete. |
Right Time to Use | Use as a preventive measure to protect the credit file. | Anyone who suspects an identity theft or information leak can freeze the credit file. |
Also Read: How To Improve Credit Score In 30 Days?
After understanding credit freeze vs lock, many people would want to know how they impact their Personal Loan. Here’s an outlook:
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Once active, credit lock and credit freeze prevent anyone from reaching an individual’s credit file, stopping fraudsters from taking loans or opening new accounts in the account holder’s name. Therefore, they are excellent security measures to protect credit data. After understanding credit lock vs credit freeze, choosing a security system more appropriate for their requirement and situation is easy.
Also Read: What is CIBIL Report - CIBIL Meaning and Calculation
1. Is a credit freeze the same as a credit lock?
No, they are different. Understanding credit lock vs freeze is essential to make an informed decision.
2. How long does a credit lock last?
A credit lock is a temporary facility that lasts only a few days.
3. Is freezing your credit a good idea?
A credit freeze is excellent if an individual suspects identity theft and wants to make their credit file inaccessible.
4. What is credit lock status?
Credit lock status is whether a person's credit file is locked or unlocked.
5. What is the purpose of a credit lock?
The primary purpose of a credit lock is to make the credit file inaccessible, preventing a fraudster from opening a new account or taking a new loan in the account holder’s name.
The act of paying out money for any kind of transaction is known as disbursement. From a lending perspective this usual implies the transfer of the loan amount to the borrower. It may cover paying to operate a business, dividend payments, cash outflow etc. So if disbursements are more than revenues, then cash flow of an entity is negative, and may indicate possible insolvency.
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