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What Does Credit Monitoring Do

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 7 minute read

Credit reporting agency Equifax said in 2017 that hackers had breached its systems and stolen the personal data of more than 140 million customers, placing them at danger of identity theft. Following the cyberattack, Equifax provided its new TrustedID Premier service, which includes one year of free credit monitoring, to all victims in the United States.

Similarly, there was a spike in interest in other paid credit monitoring and identity protection services, as seen by Google search trends. Consumers who were afraid of having their identities stolen were reassured by these services, which claimed to be able to detect the telltale symptoms of identity theft almost immediately, if not prevent the theft entirely.

A number of financial experts, however, claim that the service of paying to monitor one’s credit is unnecessary. These critics argue that at best, these services don’t offer anything you can’t do yourself for the same price or even for free. At worst, they make you feel more secure than you actually are, so you stop taking precautions that may save you a lot more trouble in the long run.

The truth is probably somewhere in the middle. Although there are clear advantages to using a paid credit monitoring or identity protection service, these options often come at a hefty price. Moreover, the security they offer isn’t necessarily as reliable as that offered by other, often cheaper, alternatives. Investigate the benefits and drawbacks of using a service like Identity Guard before committing money.

Advantages of Credit Monitoring Services

Paid credit monitoring services provide a number of benefits, which vary by supplier. The only information they’re interested in is your credit score and history. Some services go the extra mile to ensure your privacy, such as keeping an eye out for the sale of your Social Security number on the deep web.

Some of the more advanced programs offer more than just credit monitoring; they also offer protection against identity theft. However, there’s no apparent differentiation between the two. These advantages can be provided by one kind, or by both.

  1. They keep a close eye on your credit report.

Credit monitoring services’ principal function is to routinely review your credit report. In the event of any unusual occurrences, such as the opening of a new account in your name, you will be notified immediately. Even if they can’t really fix the problem for you, some firms will walk you through the process of disputing the inaccuracy with the credit agency.

  1. They Monitor Your Credit Rating

Access to your credit score is another perk of credit monitoring services. The good news is that there are several no cost methods of monitoring your credit report. Thus, the availability of a free credit score should not be a justification for enrolling in a credit monitoring program.

  1. They keep track of your identity.

Certain agencies keep an eye on underground markets where Social Security numbers are sold and bought. These services will notify you if they discover that your phone number has been posted online.

  1. They let you lock and unlock your credit.

Equifax, Experian, and TransUnion are the three major credit bureaus, and each offers credit monitoring services. One unique aspect of these services is the ability to freeze your credit report with the tap of a finger. This makes it hard for identity thieves to register new accounts using your personal information since no one can check your credit. To unlock a new account is as simple as opening an existing one.

  1. They Assist You in Dealing With Identity Theft

A credit monitoring service can assist you in resolving the issue of identity theft if it discovers that you have been a victim of this crime. Among the steps it will guide you through are filing a police report, changing your passwords, canceling your accounts, and locking or freezing your credit report.

  1. They protect you against identity theft.

Dealing with the aftermath of identity theft may be time-consuming and taxing on your wallet. It requires a lot of time on the phone, sending packages by insured mail, and maybe even hiring a lawyer. For this reason, several companies that offer credit monitoring also offer identity theft insurance.

The Disadvantages of Credit Monitoring Services

Credit monitoring and identity theft protection services aren’t free, despite their benefits. Furthermore, some professionals say that it is far too high.

  1. They are costly.

Credit monitoring services have a wide range of prices. Only a few sites offer free rudimentary security. However, the average monthly fee ranges from $10 to $35 ($120 to $420 annually).

  1. They’re Unnecessary

As the editors of Consumer Reports see it, the likelihood of having your personal information stolen is lower than the average person believes. 5.1% of customers, or roughly 13 million Americans, fell victim to identity theft or fraud in 2019, according to the 2020 Identity Fraud Study from Javelin Research.

However, the FTC reports that ID theft is far less prevalent than other types of fraud. Identity theft, which the agency defines as the unauthorized use of personally identifiable information (PII) such as a Social Security number or credit card account number, accounted for only 20% of the fraud reports it received in 2019.

Even fewer people had the most serious kind of identity theft occur to them, in which their personal information was used to create new accounts in their name. There were less than 385,000 people in the United States who fell victim to this particular form of identity theft.

  1. They’re annoying.

A credit monitoring service’s alerts may be tailored to notify you of more than simply fraudulent account openings. They will also alert you whenever there are any valid regular changes made to your credit file, such as an increase or decrease in the balance on one of your current credit cards.

These warnings are a nuisance to deal with and offer little protection against actual fraud.

  1. They’re Ineffective

The biggest issue is that identity theft can still happen even if you sign up for credit monitoring and protection programs. That’s all they can do: respond. Taking the necessary measures to stop the bleeding and fix the damage is now in your hands.

A service may be able to detect the sale of your Social Security number on the dark web, but you will not be able to recover it. The only option is to forbid its use altogether. However, not all people who use credit monitoring services understand this. Many users aren’t as cautious as they should be when it comes to securing their personal information online because they believe the service will keep them safe.

Is It Necessary for You to Use a Credit Monitoring Service?

A credit monitoring service can help you in ways you couldn’t on your own. Free credit reports are available on a regular, although not daily, basis, and it is difficult to search the dark web for references to one’s Social Security number.

A credit freeze is a useful tool for keeping your identity safe. Although it is more secure than the lock and unlock options provided by certain credit monitoring firms, it is more difficult to use. Your identity might be stolen, and there’s a good chance you don’t have insurance — or at least enough insurance — to cover the resulting financial losses.

You get your money’s worth from identity theft and credit monitoring services. The real question is whether or not you think they are reasonably priced. We need to answer three questions to get a handle on this:

  1. What is the magnitude of your risk?

From phishing schemes to actual theft, there are several ways that identity thieves might gain access to your sensitive information. Identity theft is more likely to occur if sensitive information about you has been compromised, as in the case of the Equifax attack or the Capital One data leak.

When you place a fraud warning on your credit report, you reduce your exposure to identity theft. Additionally, the risk is less if you have previously frozen your credit.

  1. How Much Damage Could Identity Theft Cause?

An estimated 23% of 2019 victims of identity theft and fraud lost financial ground as a direct result of the crimes, per the FTC’s 2020 report. Since new-account fraud typically results in greater financial losses for victims, this figure has been on the rise.

The overall amount that victims lost to identity fraud in 2019 was $1.9 billion, an increase of $293 million from the amount lost in 2018. Median losses varied widely by age group, from $448 for those in their twenties to $1,600 for those in their eighties. Protecting yourself financially if you can’t afford to lose that sum is a wise decision.

  1. Are You Able to Pay for the Service?

Costs associated with identity theft must, of course, be weighed against those of services designed to prevent such crimes. Spending $120 to $420 a year on a credit monitoring service isn’t pocket change, especially if money is tight.

However, this is the price of only one credit monitoring service. It’s not always safe to rely on the security offered by free services like Credit Karma and Credit Sesame. However, if you cannot afford a more comprehensive identity protection service, these are a viable option. 

The free TrueIdentity service from TransUnion not only locks and unlocks your information but also covers you for up to $25,000 in identity theft. Locking and unlocking your Equifax credit report using the app is free of charge, but the basic Lock & Alert service does not provide any additional benefits.

Bottom Line

Using a free credit monitoring service like Credit Karma or TrueIdentity has no obvious downsides. This service does not provide the highest degree of security available. However, there is no risk involved in making use of them because they are free.

Plus, adding more free services to your profile is like adding more armor. You may lock and unlock your credit reports at will with services like TransUnion TrueIdentity and Equifax Lock & Alert. A credit freeze will safeguard your Experian credit file indefinitely.

If you’re serious about avoiding identity theft and are ready to spend the money necessary to do so, it’s in your best interest to sign up for a reputable credit monitoring service that offers comprehensive protection against the crime on all fronts.

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