Credit freeze vs a fraud alert for credit reporting agencies

As a business, one of the most important things will be to protect your data, especially with the increase in data breaches nowadays. These high-profile data breaches often target B2B service providers and financial institutions due to the availability of funds. 

Having a healthy credit score is the backbone of having a healthy business, as it enables you to secure commercial leases, receive favourable rates on equipment financing and will also affect the premiums you pay when it comes to corporate insurance. So, naturally, when the identity of your business is compromised, the ability to scale your business becomes threatened, too. 

Fortunately, however, there are two avenues you can take in order to mitigate this risk - a credit freeze (typically used for consumers rather than businesses) or a fraud alert. Credit reporting agencies handle these two tools differently, and they are used for different strategic purposes. Although these two terms are at times used interchangeably, they are very different strategies. 

Here, we’ll look at both credit freezes and fraud alerts, explaining how credit reporting agencies implement these. 

Credit freeze

Businesses cannot freeze credit in the same way that consumers can because there are a few regulations in place that ensure businesses are as transparent as possible. Business credit is not monitored by the same laws as consumer credit, and business credit reports are always public-facing for lenders. Credit freezes ensure that information is sealed and cannot be accessed, which is not in line with UK regulatory requirements. 

Also, because credit reporting agencies are prohibited from sharing your credit report with any new creditors, this means that identity thieves are unable to open up new accounts in the user's name. 

Fraud alert

So, what is a fraud alert? Credit reporting agencies can implement a fraud alert on your credit file as a precautionary measure. If there is a fraud alert on your credit report, it shows lenders that they need to take certain precautions before extending credit to you. Usually, a creditor will call you to confirm your business’s identity and to ensure that there is no foul play. 

Business implications

Having a fraud alert placed on your credit report as a business is the more pragmatic option because: 

  • Operational fluidity: A fraud alert provides an extra layer of security when applying for various revolving lines of credit in order to manage cash flow. 
  • Agency contact: In the UK, you have to contact each credit referencing agency individually to add a Notice of Correction or use CIFAS to broadcast to all members. We’ll go through this in more detail below. 

Protective measures for UK businesses

As we have mentioned, a credit freeze is not an option for businesses in the UK, which means you’ll need to add a layer of protection in the form of extra verification to your file. This way, your data will remain transparent and open for trade but locked against unauthorised applications. 

CIFAS protective registration

The main tool used to prevent fraud in the UK is CIFAS, which is a fraud prevention service where company directors can apply for Protective Registration if they suspect details have been compromised or that they are at risk of being targeted. Here are the facts about CIFAS: 

  • Duration: Protective Registration lasts for 2 years.
  • The mechanism: A warning will be placed on your business credit file that shows any member of CIFAS that they need to carry out additional identity checks before proceeding. 
  • When to use it: When you have lost sensitive company documents, experienced a data breach or noticed any suspicious activity on your Company House filings. 

Notice of Correction (NoC)

Another avenue that you can take is to request a Notice of Correction, which is a small statement that legally requires credit reference agencies to add to your business credit report. 

  • The mechanism: A NoC is a message written by business directors that informs potential lenders that the business has been a victim of identity theft. It will also provide a specific phone number that should be called to verify new credit applications. 
  • Operational impact: NoCs need to be read manually by a human before a decision is made, which provides an extra safeguard against bot applications by fraudsters. 

Business credit

So, we know that there is a difference between consumer credit and business credit. While consumers can freeze their personal credit reports, business credit operates on another level and cannot be frozen. 

Business credit is public-facing, which means that vendors, partners and competitors can often purchase a view of the financial reliability of your business. So, naturally, your strategy should shift to monitoring your business credit score on a regular basis. 

So, choose a fraud alert if you’re looking to scale your business and are applying for vendor credit or business loans. This is the best way to add an extra layer of protection to your business credit. 

A proactive stance on financial identity

By proactively using fraud alerts through a credit reporting agency, you’re protecting your business’s finances and its ability to operate. So, make sure you put in the right measures before you experience the risk firsthand. 

 

If you’re looking to implement a business credit check, be sure to get in touch with Creditserve today! We have the knowledge and expertise to walk you through every step of the process.