What is Credit Monitoring and is it Effective?
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At a Glance
More than 1.43 million consumer identity theft complaints were filed in 2021, with nearly 390,000 of those alerts just for credit card fraud. Complaints about fraud and identity theft, as well as dollars lost from these activities, continue to increase year-over-year.
With the increase in use of technology and personal information being stored online, data breaches are common and can be significantly destructive if compromised. That’s why it’s important to monitor your credit regularly, either by yourself or through a paid monitoring service.
Read on to learn more about:
What is credit monitoring?
Fraudsters can open credit accounts in your name and use them, often tanking your credit score and potentially ruining your credit history and even current and/or future finances. Oftentimes, by the time you see the damage, it’s too late, and it can take years to repair. Credit monitoring can help prevent these actions, catch them early, and protect your credit and score.
You can monitor your credit yourself, or you can use an online service. If there’s a change in one of your credit reports, the credit monitoring service will alert you (typically via email) so you can be aware just in case it wasn’t you making those changes. If it was, there’s no need to act. But if it wasn’t, you can catch fraud or errors early before they do too much damage.
How does credit monitoring work?
To monitor your own credit, check your credit score regularly. Some banks, credit cards, and lenders allow you to check your score for free through your personal account. Or, you can get a free copy of your credit reports from each of the three major credit bureaus (Experian, Equifax, and TransUnion) once every 12 months.
Credit monitoring can also happen via a service that checks your credit activity on a regular basis, tracking your credit report for important triggers or changes that seem suspicious or out of the norm. If there are any changes to your credit or suspicious activity, the credit monitoring service will let you know. Some services offer more comprehensive tracking of scores, while others are more general.
With credit monitoring, you may even be able to stop a fraudster before they are able to do any damage.
What kind of errors can credit monitoring catch?
There are several errors a credit monitoring service can catch depending on the service, such as:
- Applications for new credit accounts
- Unknown devices accessing your accounts
- Use of accounts in locations you don’t typically spend in
- Adjustments to your credit score
- Adjustments to credit card balances or credit utilization rate
- Late payments
- New derogatory credit information
- Updates to your personal identifying information, such as name, address, or contact information
- Payments reported that you didn’t actually make
- Hard credit inquiries
- New accounts added to your credit report
Related: Hard Credit Inquiry
Pros and cons of credit monitoring
Why do you need credit monitoring?
Credit monitoring, whether you do it yourself or use monitoring tools or services, helps you protect your information and credit. Credit monitoring can also help you improve or maintain your credit score by understanding how your habits affect your score and how to have a positive impact.
Even if you’re careful with your personal information, there’s a lot that can be accessed by fraudsters and used against you. A data breach somewhere can have a massive ripple effect and your sensitive and personal information can end up in the wrong hands. But with credit monitoring, you’ll have peace of mind that you’ll be notified immediately of any changes to your report.
Free vs. paid credit monitoring
Many banks and credit card companies offer free credit monitoring services that come with being a customer. As noted above, you can also access one free credit report every 12 months from each of the credit bureaus to monitor it yourself, though sometimes waiting this long could mean it’s too late.
If you have concerns, consider adding fraud alerts to your credit reports. This requests that lenders notify you via phone call if someone applies for new credit using your name or information. This is a free service.
Additionally, there are paid services that charge on a monthly or yearly basis. These services often offer additional benefits like public records monitoring, insurance protection, and others. Before purchasing a service, carefully understand what is and isn’t covered. Also be sure the cost is something that fits in with your budget, as they can be expensive.
Is credit monitoring effective?
Determining whether to monitor your credit yourself or to hire a credit monitoring service depends on your personal and financial situation, but either way, it’s important to have some type of credit monitoring system in place. Recovering from identity theft can take years, be very costly, and difficult to come back from. By monitoring your credit regularly, you can help prevent this from happening to you.
Take advantage of free services offered to you, such as free reports or the ability to check your credit score without being affected. Consider setting up a fraud alert on your credit if you have concerns.
If it fits in your budget, you can consider purchasing a monitoring service. This makes it easier to ensure your credit is being actively monitored, and may come with additional benefits that can help you protect your identity and credit.
Credit monitoring services keep an eye on your credit and alert you if there is any suspicious activity or other triggers that seem out of the ordinary. This can include adjustments to your credit score or credit utilization rate, late payments, applications for or new accounts opened, use of accounts on devices or in locations you don’t typically spend time in, and more. These services may also offer additional benefits like insurance protection, public records monitoring, and others.
You can access your credit report from each of the three credit bureaus once every 12 months for free. You can also monitor your own credit for free by using free tools offered by your bank or credit card (if available).
Credit monitoring is important because it can help protect you from identity theft and the fallout of your identity being stolen, such as ruined credit score, financial loss, and years of repairing the damage. Catching errors or suspicious activity early through monitoring can help you get to the bottom of the issue faster and ideally prevent identity theft as much as possible.