Credit Monitoring Services: Are They a Waste of Money or Useful?

Credit monitoring services sure have gotten popular over the last few years.  While I will safely refrain from saying it’s a waste of money for everyone, I will outline a few of the reasons why I believe they are incorrectly marketed and may not contain as much value as they are stated to hold.

1. False pretense by definition

Credit monitoring services often bill themselves as being “protection” from identity theft.  This leads a person to assume that it would be harder or even impossible to have your identity stolen if you enroll in such service; however,  monitoring credit can logically only detect a previous instance of misuse rather than instantaneously catch on to successfully prevent such a breach.  If you take a second to think about it, paying money to a credit monitoring service in the hopes you’d prevent identity theft is somewhat akin to being sold into believing that aspirin is as effective as a bicycle helmet.

Granted, in the case you fall off your bike, a couple pain pills might certainly be helpful, but having a pocket full of them wouldn’t prevent an injury from happening in the first place.

2. There is no free lunch

Often times the biggest benefit sold with credit monitoring services is access to free credit scores that accompany memberships. Most times the credit scores are not FICO scores and therefore are just some random numbers not at all used in any actual lending process. Since the value of knowing your credit score is seeing how it relates to one’s lending or credit capacity, a score that isn’t FICO is worthless. In the case where there are legit FICO scores offered, you are going to pay for it with the increased cost of the credit monitoring service. It’s sort of the same thing as restaurants that advertise “Kids Eat Free” - while it can be a method for both parents and kids to have a meal, it’s hard to passionately argue that eating in any restaurant is the most cost effective way to feed kids.

3. Insurance is mostly pointless

The insurance that is embedded with credit monitoring programs really only considers claims for out of pocket expenses directly related to having identity stolen. Companies selling services highlight 'fear' statistics like citing identity theft as a $37 billion a year problem but fail to specify that corporations are overwhelmingly responsible for the bulk of these costs and not individuals.  As long as the incident is reported to both the creditor and included in a police report, the actual individual damages are typically minimal (if non-existent) since most accounts issued by creditors and bank contain their own zero liability protection. The implied need for the insurance can further be exaggerated in the policy size, as much to $1 million dollars in coverage for some providers.

The reality is, unless you’re hiring Eric Clapton to make those calls for you, you’d never use as much to really justify the cost of having a regular premium.  After all, the average amount lost by a victim of identity theft is said to be $631. Recognize the real threat of identity theft and protect yourself. Just because paying for credit monitoring servicing doesn’t really protect you from identity theft doesn’t mean you should ignore the problem altogether.

Here are some steps to help you safeguard you credit on your own:

• Credit Freeze.  Available to people who have been victimized by identity theft in the past or to everyone else for a small fee, credit freeze does actually directly stop or deflect incidents of identity theft in that it completely shuts down your credit from being accessed from outsiders.  You are provided a pin so you can unlock your credit on days you wish to apply for products.
• Monitor Credit Regularly.  You have the ability to access free credit reports via all three major issuing bureaus at least once per year though the federal trade commission accessed via www.annualcreditreport.com.  Since overall the bureaus report similar findings, you can space out each inquiry to get a free report every 4 months.  If you need to buy additional reports, you can do so through sites like myfico.com  or directly through each credit reporting agency for a reasonable cost...without having to sign up for subscription based services (though they are offered so be careful).
• Look over accounts weekly.  Sign up for online accounts to get access to your accounts and set routines to briefly check them once per week.  Set free alerts to notify you with any abnormal use (if account balances drop beneath a certain amount or purchases are made above a certain limit).
• Open your mail.  Though it all may look like junk mail, opening all your mail helps you decipher the difference between such and possible credit statements opened with your identity.  Weird phone calls that don’t make sense or any indication that your name is being used with information that doesn’t add up can be sign something is wrong.
• Keep up your guard up at home.  Sadly, a large portion of identity theft crimes are committed by people that know their victim personally. Opting into e-statements for accounts and keeping credit cards and secure information like social security numbers literally locked up can help you reduce the threat.

Want help understanding your credit report? Give us a call at 888.577.2227 or visit the Credit Review page on our website and set up a credit report review! Learn more about LSS Financial Counseling by visiting our website. By Tim Fischer