Credit Monitoring Services

Credit monitoring services offer subscribers access to their credit reports and credit scores from one or all three of the major credit reporting agencies, Experian, Equifax, and TransUnion.

Many monitoring services allow unlimited access to your reports, even as much as daily. Some have other features to help you improve your credit, and may offer tips for your particular credit situation. Most services cost about $120 to $180 a year.

Consumers may have different reasons for using a credit monitoring service. They may plan to get a mortgage or auto loan in the near future, and want to ensure that their credit score is in tip-top shape before applying for a major loan.

They may be actively working on improving their credit, and like to watch their credit scores rise with each overdue debt paid off.

Or, they may have been a past victim of identity theft, and want to prevent the same situation from ever happening again.

Credit Score Watching
A credit monitoring service can be a useful tool if your goal is to improve your credit score. It can actually be fun to check on the increase in your credit score when you pay off a large debt.

But since your creditors will only report your payments once a month, it really isn't necessary to check your report and score more often than that. And, unless you plan on applying for credit in the near future, it really doesn't matter if your score fluctuates a little from month to month.

Watching how your credit score is affected by your credit decisions for a period of time can give you insight on how future decision will affect your credit score. It may be worthwhile to subscribe temporarily for the credit score education.

You can cancel your subscription when you understand how your score is affected by your accounts and balances. So, even without the service, you'll probably have a good guess on your credit score at any given time.
But keep in mind that the score you get with your credit monitoring service may be somewhat different from the score your creditor will see.

Most creditors use the FICO score, and while the number you get from the credit monitoring service should be fairly close, it may be off by up to 50 points from your FICO.

Rather than being stuck on a particular number, it's safer to think of your credit score as being within a range of excellent, good, fair, or poor.

Consumers commonly complain that they thought they had a great credit score when they used a credit monitoring service, and then were shocked when they were declined credit.

Avoid this situation by understanding that your credit score attained from a credit monitoring service should be used more as an educational tool, rather than the true score your creditors will see.

Identity Theft Protection, Not Prevention
It's important to understand the limitations of credit monitoring if your main concern is prevention of identity theft. Monitoring your credit reports will tell you if someone has fraudulently opened an account in your name, but it really won't help you prevent it from happening to begin with.

The protection comes when you notice an account that you didn't authorize and report it to both the creditor and the credit bureau. If you catch it quickly, answering a few questions over the phone or a quick online dispute may be all it takes to clear up the problem. The hope is that your credit report and score will be updated to accurately reflect your credit history without any more effort on your part.

This didn't stop the thief from opening the account to begin with, but it kept the thief from running up more charges on the fraudulent accounts. Checking your report at least annually will help prevent "runaway" identity theft, but it's really best to check it at least every several months.

Identity Theft Insurance
Some credit monitoring services offer additional identity theft insurance, promising to pay for the lost time and money involved in clearing up problems from fraudulent accounts. The cost for identity theft insurance may run $25 to $60 a year.

Some policies have a deductible of several hundred dollars, but may be as high as a thousand dollars. Some insurance policies don't cover lost time at work or legal fees involved in clearing up your identity.

The National Association of Insurance Commissioners warns that "Identity theft insurance cannot protect you from becoming a victim of identity theft and does not cover direct monetary losses incurred as result of identity theft.

Instead, identity theft insurance provides coverage for the cost of reclaiming your financial identity, such as the costs of making phone calls, making copies, mailing documents, taking time off from work without pay (lost wages) and hiring an attorney."

I'm aware that some people have had their lives practically turned upside-down by an identity thief. We've all heard horror stories about people who've been victimized for years, totally unaware of the situation, until they apply for a loan and find out that there are multiple overdue accounts all over the country under their Social Security number. They lost time at work, or even lost their job due to fraudulent debts.

These circumstances, no doubt, will take a lot of phone calls, letters, lost time, and possibly even legal fees to clear up. While that is a sad situation to have to deal with, identity theft cases can often be dealt with much easier and with less damage to your credit as long as you catch them before a thief has a chance to take your identity and run.

No one would file an insurance claim for writing a few letters or making a few phone calls, so the price you'd pay for the coverage could easily be a waste of money.

But if you feel that identity theft insurance would bring you peace of mind, check to see if it's included in your homeowner's policy before purchasing a separate policy. If it's not included, you may be able to purchase coverage. Also, some credit cards may offer identity theft insurance, as will some financial institutions.

Monitor your credit for free.
You can easily check your credit reports for fraudulent accounts and charges, without using a monitoring service. By law, you are entitled to a free credit report once a year from all three credit bureaus at www.annualcreditreport.com.

You can choose to view your report from all three or one of the credit bureaus. View one agency's report every four months, and you'll still be able to catch fraudulent accounts fairly quickly. And, you won't pay a penny.

Your free credit report won't contain your credit scores, but you can purchase your score when you request your free report. Your score isn't that important unless you're just curious or you plan on applying for credit in the near future; the main thing is looking for unauthorized accounts or charges on your credit report.

The best way to prevent identity theft is to freeze your credit reports.
To stop identity theft from happening to begin with, put a freeze on your credit reports. This prevents any one from opening new accounts while the reports are frozen. Any one, including you.

You'll have to temporarily lift the freeze before you apply for new credit, so that your creditor can pull your credit report. You can freeze your credit report again when your credit shopping is finished.

The cost for a credit freeze is dictated by state law; the charge - in most states - is about $10 per credit bureau. There's no charge to place a freeze on your credit report if you have been a victim of identity theft. For instructions on how to freeze your credit report and the laws in your state, go to http://www.consumersunion.org/campaigns/learn_more/003484indiv.html.




Sources:
Federal Trade Commission
National Association of Insurance Commissioners
smartmoney.com
annualcreditreport.com
consumersunion.org
truecredit.com