Beginning September 21st, a new federal law allows consumers to place free credit freezes with each of the three nationwide consumer reporting agencies (Equifax, Experian and TransUnion).

The new law should help prevent identity theft. Credit freezes prevent third parties from getting a copy of your credit report from one of the consumer reporting agencies (CRAs). Banks and credit card companies pull your credit report when you apply for credit. If they can’t access your credit report, they won’t give you a loan or a credit card. That should prevent an identity thief from applying for credit in your name.

Credit freezes are the most effective way of preventing identity theft. The downside? You’ll need to unfreeze your credit if you apply for a loan or credit card. The same will probably apply if you apply for job or lease. But there’s also good news. The new law prevents the CRAs from charging you to lift a credit freeze. They also have to act quickly. If you apply for credit and ask for the freeze to be lifted, the CRAs must do so within one hour.

If someone steals your identity, you should file a report with the Federal Trade Commission (FTC) as soon as possible. The link for filing report is here. The FTC will use the information you provide to give you a personalized recovery plan. You should also file a report with your local police department.

If an identity thief does get credit in your name, you should contact the bank or business that issued the credit. Federal law requires businesses to provide identity theft victims with a copies of the records relating to the theft, for free and within 30 days. These records are important. Not surprisingly, identify thieves who get loans and credit cards in someone else’s name don’t pay them. You may need the records if you’re sued by the creditor that issued the loan or credit card.

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