5) Do You Need a Credit Monitoring Service?
A look at potential benefits, limitations and your options for monitoring your credit report.
An increase in identity theft, coupled with an explosion of online "phishing" scams targeting personal information, has many consumers eager to take steps to protect their personal information and credit. Although you can learn how to recognize and avoid phishing scams and take other steps to guard your personal information, reviewing your credit report regularly for errors and unauthorized or suspicious activity is one of the best ways to detect ID thieves if they strike you in spite of your efforts.
Increased public awareness of the importance of regularly reviewing personal credit reports has produced an explosion of credit monitoring services. Subscription offers pop-up on computer screens and arrive by email, snail mail and phone daily. Would one of the reputable services be useful and worth the subscription price? Or can you do it yourself more easily, effectively, and economically? The answer can be yes, no, or maybe, depending on your individual circumstances and needs. To help you make the decision, this review looks at the basics of credit report monitoring, the potential benefits and limitations of services, and tips for making the choice that's right for you.
What is a Credit Report and Why is it Important?
A credit report details an individual's credit history. This history includes personal identification information, a listing of credit accounts and loans, payment record on those accounts (particularly late payments), defaults, charge-offs, repossessions, bankruptcies, and recent inquiries from third parties (such as potential lenders or insurers) about the credit report. Credit reports are compiled by specialized data aggregation companies called Credit Reporting Agencies (CRAs) or credit bureaus. The Big Three CRAs in the United States are Equifax, Experian, and TransUnion. Other smaller or more specialized CRAs typically need not concern an individual consumer.
The accuracy of your credit report is important because your credit history affects so many areas of your life. Planning to buy an auto or boat? How about a mortgage to buy your own home? Or maybe you just want to open a charge account or get a credit card. Lenders use your credit history to determine whether to give you the loan or account and how much interest you'll pay. Potential employers often check credit reports before offering you a job and landlords before renting you an apartment. Most insurance companies now use an insurance score based on your credit history to help determine the rate you'll pay for auto insurance, and some use it for homeowners insurance.
What's the Purpose of Monitoring your Credit Report?
Because your credit history plays such a big role in these areas of life, making sure that your report is accurate helps you manage your credit to accomplish your financial goals.
- First, every consumer should monitor his or her credit report to check for errors and false, misleading, or incomplete information. Various studies have found that as many as 70 to 80 percent of credit reports may have errors.
- Second, because identity thieves want your personal information typically to steal your money, they often open accounts in your name or co-opt your accounts (run up charges and don't pay) or they may do other things in your name that show up negatively on your credit record. Monitoring your credit report regularly won't stop identity thieves, but it is one way to spot potential ID theft as quickly as possible so that you can take steps to stop it.
What Do Credit Monitoring Services Do?
Most credit monitoring services offer their programs as "privacy protection" or "anti-ID-theft" services. But as we've just noted, monitoring your credit report is not a deterrent to identity theft, but simply a potential early warning.
The actual services provided for the subscription price vary widely among different companies. In general, the services promise to check your report regularly for suspicious activity and alert you. This checking ranges from daily to quarterly. They also provide you copies of your credit report and credit score (though not necessarily your FICO credit score) at stated intervals. You may be able to view your report online anytime, but the services typically update the report only at stated intervals, which can be lengthy. Some offer "fraud resolution" services and fraud insurance though just what those include again varies.
How Useful are Credit Monitoring Services for Most Consumers?
Both the credit industry and consumer experts in privacy and personal finance agree that individuals need to monitor their credit reports regularly. The U.S. Congress thought this was so important that it passed a law requiring each of the big three CRAs (Equifax, Experian, TransUnion) to provide one annual free credit report to each individual upon request. The rollout is complete throughout the country. (Some state laws also provide consumers access to more than one free credit report annually.)
So would a credit monitoring service help you monitor your credit report more conveniently or effectively? The credit industry, of course, says yes. Many consumer groups feel that the monitoring services generally charge a high price for something most consumers can do for themselves for free (given the new law) or for considerably less than the relatively high subscription costs. Most everyone agrees that the services may be most useful for consumers who have experienced ID Theft and who are at high risk for it. The bottom line is that each consumer must do his or her homework and make the appropriate choice for individual circumstances. Here's a summary of a few potential benefits and typical limitations of credit monitoring services:
Potential Benefits of Credit Monitoring Services
- Early detection of errors or suspicious activity: choosing a service that monitors your credit report daily or even weekly (provided the report is also updated that regularly) and sends you regular alerts or "all clears" can help you spot problems early.
- Fraud resolution services: some services promise help with cleaning up your report when you've been hit by ID theft. But you need to check out the fine print of what those services are with an individual service.
- Identity theft insurance: Identity Theft insurance covers the time and money you spend restoring your identity and repairing credit reports if your identity is stolen. Covered items may include attorney fees, mailing costs, reapplication fees, phone charges, and lost wages for time taken off from work to deal with identity recovery. The deductible should be fairly low, about $100 would be good. Should you not use a credit monitoring service, you can purchase stand-alone identity theft insurance from various vendors for $25 - $50 annually.
Typical Limitations of Credit Monitoring Services
- Most services monitor only one CRA's report: although most services advertise their product by saying they provide access to all three reports, most generally provide this only to start; the regular monitoring covers just one agency's report. Information and errors in reports of the three CRAs can differ.
- The monitoring and updating may not be timely: the "gold standard" for monitoring services would be daily monitoring of all three reports with email alerts within 24 hours. Many services have much wider intervals. Although you may see your credit report online anytime, many services only update these online versions quarterly; some of the less reputable services may update even less frequently.
- Cost: the monitoring services we looked at charged between $44 and $130. Services offering daily monitoring and alerts typically cost about $100.
- User complacence: subscribers to a credit monitoring service shouldn't buy and then forget to review their credit report. Regular personal review is still a must because only you know what's accurate. Likewise, only you can take steps to correct errors or control the damage if you've been a victim of identity theft.
An Alternative to Services: Monitor Your Credit Yourself for Free (or at lower cost)
You can monitor your credit report regularly by taking advantage of the new law that requires each nationwide credit reporting agency to provide you with a free copy of your report every 12 months. By spacing your requests from each of the three agencies at four month intervals you can review your report three times a year. For example, request your report from Equifax today, from Experian in four months, and from TransUnion in 8 months; a year from today begin the cycle again.
If you live in any state you can order a report free today. If you wish to monitor your credit report more frequently than every four months (unless you live in a state that provides two annual reports), you can purchase your credit report and credit score from each national CRA for $15 on average.
If you wish to order your free reports online, the official website is www.annualcreditreport.com. Please note that this is the only official website, as required by law and sponsored by the three national CRAs. For safety we recommend that you access it by clicking on this link or linking to it from the Federal Trade Commission's fact sheet—in that way you can avoid unofficial sites (interested mostly in selling you something) and imposter sites (interested in stealing your personal info).
Your Access to Free Credit Reports, a fact sheet from the Federal Trade Commission (FTC), explains how to use the service, answers questions, and provides contact information.
Information Edge Tip: If you would rather order your free reports by phone rather than online—thus avoiding the danger of encountering an imposter site, there is also a toll-free phone number, 877-322-8228. You may also order by mail using the order form included in the FTC fact sheet above.
The Final Decision is Up to You
In the final analysis only you can decide if a credit monitoring service would be helpful for you. Just remember that whether you use a service or not, keeping an eye on your credit reports is an important part of good personal financial planning and management. Because it's so important and interpreting what the information on your credit report means can be tricky, the Information Edge Report How to Review Your Credit Report details how to read and analyze your credit report and how to take steps to correct any errors.