What Is Credit Monitoring & What Does It Actually Do?
Credit monitoring is a service that alerts you whenever a change is made to one of your credit reports. This gives you the chance to quickly confirm the accuracy of the change and, if necessary, start sorting out any problems before they really get out of hand. Any suspicious credit-report change can be a sign of fraud, after all, and credit reports often contain errors that can cause rejection by a lender.
So while the threats facing our personal information are now greater than ever before – data breaches are up 500% in the past decade, for example – it’s good to know that our defenses have improved, too. We have plenty of free credit monitoring services to choose from, and many are bundled with free credit reports and/or scores.
Below, you can learn more about what credit monitoring does and how to get the most from it for the least money. You can also see exactly how credit monitoring works in practical terms by signing up for a free WalletHub account. In addition to free 24/7 credit monitoring, WalletHub gives you free credit scores and reports that are updated on a daily basis. That’s an unbeatable package, in our obviously biased opinion, but feel free to compare the other top credit monitoring services to make up your own mind.
What Does Credit Monitoring Do?
The specifics depend on the provider, but credit-monitoring services generally notify you within 24 hours of a change being made to your credit report. Most companies will provide these notifications via phone call, text message or email, depending on your preference.
The types of activity that a credit-monitoring service will notify you about – any of which could be signs of fraud if unexpected – include:
- Hard Inquiries: When a credit card or loan application is submitted in your name, the financial institution will run a credit check, adding a “hard inquiry” listing to your credit report.
- New Accounts: Credit reports note whenever a new credit card or loan is opened under your identity.
- Existing-Account Changes: Credit reports include details on your payment history and highest balance with each of your credit cards.
- New Public Records: These include information about bankruptcies, tax liens and civil court judgments.
- Address Changes: Any address associated with a credit card or loan listed in your name can be found on your credit report (with a few key pieces of info, a criminal can officially change your address on file with the U.S. Postal Service to intercept your mail and sneakily assume greater control over your financial life).
- Non-Credit Red Flags: In recent years, security companies have created identity-theft solutions that are more comprehensive than a traditional credit-monitoring service. For example, they might monitor sex-offender registries, bank-account activity or payday-loan applications. Such providers are often referred to as “identity-protection services.”
Obviously, if these sorts of developments were not personally authorized or initiated by you, you should act under the assumption that they’re evidence of fraud.
A credit-monitoring service merely provides timely information; it’s up to you to put this information to good use. Just remember that credit monitoring isn’t an all-inclusive shield against identity theft and fraud. Ideally, it should be used as but one cog in a broad protection plan.
Follow these tips to maximize the effectiveness of credit monitoring:
- Say No To Free Trials: Some credit-monitoring companies offer free trials that automatically enroll you in a monthly subscription once the trial is up. However, these offers are notoriously difficult to cancel, suggesting that the companies hope you’ll either forget to cancel or give up trying to do so out of frustration. Avoid falling for such traps.
- Tailor Your Notification Preferences: For credit monitoring to be effective, it must complement your lifestyle and organizational preferences. For example, if you’re always on the go and check text messages more often than email, make sure your service of choice offers text alerts. The goal is to get the most important information ASAP without the distraction of communications that aren’t time-sensitive such as marketing emails.
- Act On Suspicious Changes: Procrastination will defeat the purpose of paying for credit monitoring, so make it a practice to act on important notifications immediately rather than later. Experience teaches us that “later” may take an awfully long time to come around.
- Monitor Your Own Credit: Every consumer is entitled to a free copy of each of his or her credit reports every 12 months. So you can do your own credit-report monitoring. Ordering one of your three major reports every four months will enable you to regularly check your files for suspicious inquiries, accounts and other activity. In addition, you should review your monthly credit-card statements for unauthorized transactions.
- Apply A Credit Freeze: TransUnion, Experian and Equifax all allow you to effectively put a “lock” on your credit report. This prevents unauthorized access to them, making it impossible for fraudsters to open new accounts with your identity.A so-called credit freeze is free for victims of identity theft but may cost up to $10 per freeze for everyone else. The cost depends on your age, military affiliation, state of residence and whether you’ve made previous requests.
There are also a number of commonsense, and mostly free, steps that you can take to protect your personal information either in lieu of or in addition to credit monitoring. Learn about them in our Identity Theft Protection Guide.
Image: Shivendu Jauhari / iStock.
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