Financial Counseling Certification Program (FiCEP) Practice Exam

What is the primary benefit of placing a fraud alert or freeze on your credit report?

1. To ensure all debts are in good standing

2. To limit access to your credit information

3. To guarantee approval for future loans

4. To automatically stop all credit accounts

The correct answer is: To limit access to your credit information

The primary benefit of placing a fraud alert or freeze on your credit report is that it significantly limits access to your credit information. When you establish a fraud alert, potential creditors must take additional steps to verify your identity before issuing new credit in your name. This is especially valuable if you suspect that your personal information has been compromised, as it provides an extra layer of protection against identity theft. Similarly, a credit freeze prevents lenders from accessing your credit report altogether. This means that even if someone attempts to apply for credit using your personal information, they will not be able to do so without lifting the freeze, which requires your consent. The other options do not accurately represent the main advantage of placing a fraud alert or freeze. While ensuring that debts are in good standing is generally important, it is not a direct result of these measures. Instead, the focus is on preventing unauthorized access to your credit record. Guaranteeing loan approval is not a function of fraud alerts or freezes; they do not influence the creditworthiness that lenders evaluate for loans. Finally, a fraud alert or freeze does not automatically stop all existing credit accounts, as those would still remain active unless specifically closed or canceled by the account holder.