Credit Monitoring: Is It Worth It?

Credit Monitoring- Is It Worth It

Are you considering a fee-based credit monitoring service?

Makes perfect sense, considering the prevalence of identity theft in the U.S. alone. In 2014, 17.6 million U.S. residents experienced one or more incidents of identity theft, according to the Bureau of Justice Statistics. That’s 7 percent of the population age 16 and over! We’ve even witnessed several big-box retailers fall victim to security breaches.

But before moving forward, you have to consider if the monthly cost outweighs the benefits, and if there are better cost-efficient alternatives.

What Is Credit Monitoring?

It is a service that is used to monitor your credit profile around the clock and provide you with a credit score each month.

Pros

1. Instant Alerts

 Subscribers are immediately notified of any credit activity impacting their credit profile.  In the event you are victimized by an identity thief, knowing this information sooner than later could save you tons of time, money and headaches.

 2. Credit Score Simulator

This tool enables you to gauge how a particular action will impact your credit score over time. You can estimate the impact the on your FICO score if any of the following occur:

  • Receive a denial for a credit card of loan
  • Open a new credit card or loan
  • Transfer balances to a new credit card
  • Reduce outstanding balances by a certain amount
  • Make Timely payments over a specified period of time
  • Receive Credit line increase
  • Have an account sent to collections

The impact of tax liens, wage garnishments and foreclosure can also be determined using this tool.

 3. Educational Resource

Most credit monitoring platforms include a credit overview explaining the five components of a FICO score and how you’re performing in each area. Not only is this great way to determine which actions are needed to boost your score, but it is also a great way to educate yourself on how credit works in a nutshell.

Cons

1. Reactive

Although credit monitoring enables you to stay on top of what’s occurring in your credit profile, it’s reactive in nature. Simply put: the damage is already done once you’re notified. By contrast, a security freeze is proactive and restricts access to your credit profile without express permission. You can learn more about security freezes here.

2. Inconsistencies in FICO Scores

The FICO score provided by your credit monitoring service isn’t necessarily the one lenders will use. In fact, each type of lender has their own unique formula as they are evaluating your creditworthiness using different factors. For example, an auto loan company or mortgage lender will not analyze your credit profile in the same way that a financial institution making a personal loan would.

This could be very problematic when applying for a loan because you may be under the impression that you qualify for a more competitive product with a lower interest rate than you actually do. And unfortunately, lenders will not consider the score received through the credit monitoring service provider.

The Verdict

Why pay for something you can get for free or do on your own? My advice: monitor account activity and review statements received from lenders and financial institutions for unusual activity.

Access Your Free Credit Report

You can retrieve a free copy of your credit report annually from the three credit bureaus via AnnualCreditReport.com. I recommend accessing one report from each bureau every four months to maximize the benefit.

Free Credit Monitoring Services

Upon discovering other free credit monitoring services offered online, I test drove them for a few months and decided to drop my paid subscription. Reasoning: their services were actually a step above what I was paying for and they went the extra mile to offer product recommendations best suited for my financial situation. ReadyForZero also recently rolled out a new fee-free credit monitoring service that is definitely worth a test drive.

Other Free Options

Select financial institutions and credit card providers offer free tools to help you stay on top of your credit. Inquire directly to learn more about credit resources that may be available to you.

A Final Thought

If you are set on purchasing some form of credit monitoring, confirm it is from a reputable provider that displays a score provided by one of the three credit bureaus. Lastly, if subscribing gives you a peace of mind and outweighs the monthly cost of having to deal with a tattered credit profile after the fact, go for it.

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