Uh-oh! You have just discovered that your identity has been stolen. Should you apply a credit freeze to your accounts, a fraud alert, or both? To make the right decision, it is important to understand how each one operates and the effects each has on your accounts.

A fraud alert requires that any lenders or creditors take reasonable steps to verify your identity before issuing new credit in your name. You do not have to be a victim of fraud to initiate an initial fraud alert; you can do so as a pre-emptive measure, regardless of whether or not your identity has been stolen. An initial fraud alert lasts for 90 days (active duty military members have the option of a one-year application). If you are a victim of ID theft and have filed an identity theft report, you can extend the fraud report for up to seven years.

To place a fraud alert, contact one of the three major credit bureaus (Equifax, Experian, or TransUnion) either online or by phone. The bureau that you contact will share the information with the other two bureaus. There is no charge to place or remove a fraud alert. You can still open legitimate new accounts during a fraud alert as long as you can provide suitable proof of your identity.

Compared to a fraud alert, a credit freeze offers more extensive protection. With a credit freeze, potential new creditors cannot access your credit report at all, therefore they will not issue credit in your name. In most states a credit freeze is indefinite, but some states allow the freeze to expire after a certain number of years.

To apply a credit freeze, you must contact all three bureaus (freezes are not "shared" in the same way that fraud alerts are). Credit freezes are typically free if you are a verified victim of ID theft, otherwise there is usually a fee associated with applying a freeze — amounts vary by state and range from $2 to $15.

You cannot open any new accounts during the credit freeze; you must lift the freeze prior to applying for new credit. It is possible to re-establish the credit freeze, but there will be fees associated with each time that your credit is unfrozen and re-frozen. When you apply the freeze, you will be issued a PIN number that will be required for unfreezing and re-freezing your credit.

Neither a credit freeze nor a fraud alert affect your current accounts; they only concern the opening of new lines of credit. If your current accounts have been compromised, you need to contact the fraud department at each of those creditors, to have those accounts closed, and a new card reissued (or have the individual account frozen, if that is an option with that creditor). Make sure that you change all relevant PINs and logins/passwords. Action Buttons within Credit Manager by MoneyTips make this process extremely easy.

By applying a credit freeze, you are sacrificing convenience (and some expense) for an increased level of security. A fraud alert may make more sense if you need regular access to lines of credit. After the initial 90-day period, you can decide whether to let the fraud alert expire, extend the fraud alert if you have evidence of identity theft and have filed the necessary report, or apply a credit freeze if you have greater concerns.

Use these tools in whatever way best fits your situation and comfort level, but make sure you understand how to use these tools, before you do, to avoid unpleasant credit surprises.

If you would like to monitor your credit to prevent identity theft and see your credit report and score for free within minutes, check out our credit monitoring service.

This article was provided by our partners at MoneyTips.