Do you need to pay for a credit monitoring service to Protect your identity?

Do you need to pay for a credit monitoring service to Protect your identity?

Q: Some of the information that appears on my credit report is not accurate. Does that mean my identity has been stolen? Should I pay for credit monitoring, or can I accomplish the same thing at no cost?

A: While an inaccuracy may be indicative of identity theft, it is not an assurance that your identity has been stolen. But that error, even if it's an honest mistake from one of the entities that reported the activity, may determine whether or not you are approved for credit cards, mortgages, auto loans or other borrowing needs. In some cases, if you are approved despite the error, the terms of that loan may make the deal less affordable.

There are several ways to dispute incorrect records. But first, you must be able to identify such errors so you can take action to correct them. In cases of identity theft or other fraud, it could be months before you notice the errant information. By that time, a lot of damage has already been done. For this reason, many consumers have chosen to rely on credit monitoring services. 

But are they necessary? The answer is probably different for everyone. Here's some things to consider when trying to decide for your personal situation:

How Much Monitoring do you Need?

You are legally entitled to receive one free credit report per year from each of the three main credit reporting companies, Equifax, Experian and TransUnion. They can be obtained from annualcreditreport.com. But it's important to note that you don't have to get your report from all three at the same time. If you stagger the months to get one from a different company every four months, you are essentially doing your own monitoring.

Keep in mind that this service provides your credit report only. If you want to know your actual credit score, you will be asked to pay for it. In most cases, it costs around $12.95. However, as per the Dodd-Frank Act, cases of "adverse actions" will allow you to get a free credit score. These adverse actions include:

• Being denied credit
• Being denied insurance
• Being required to pay a higher deposit (such as for a utility company)
• Having to pay a higher interest rate
• Being required to have a co-signer on a loan

If one of these actions happens to you when you apply for credit or insurance, the provider is required to tell you which bureau they were using so you know which company to contact. If you do find false information, you can dispute it online with that credit bureau. When you file your dispute, that bureau must also share the information with the other two. For many consumers, these adverse actions are the first sign of erroneous information and/or identity theft.

That is one of the main reasons people choose to pay for credit monitoring services. The fear that they would be turned down for a mortgage or that their entire life could be disrupted as a result of identity theft is enough motivation for them to incur the cost. Some experts also suggest a paid credit monitoring service can be an effective credit education tool and that proactive monitoring can help you raise your credit score - thus saving you money on your loan payments.

Certainly, if you know you're going to be applying for a mortgage soon, you should be monitoring your credit to give you more ability to boost your score and get the best mortgage rate possible.

Are Credit Monitoring Services Legit?

Several years ago, the Federal Trade Commission cracked down on many organizations that enrolled consumers in their programs and didn't clearly disclose the terms, locking them into a program that was more complex and more costly than they had intended to purchase. Thankfully, as a result, those entities now have much more obvious disclosures on their webpages and other collateral to help consumers know exactly what they are authorizing.  
While the complaints have decreased following these actions, always be sure to read all the fine print to make sure you know exactly what you are signing up for and are able to take full advantage of what you do purchase.

How do Credit Monitoring Services Work?

Though the concept is generally the same across the industry, each service is a little different. Once the service is paid for, the credit monitoring company begins continual review of your credit activity and history. It is on the lookout for fraudulent activity and instances that could indicate identity theft. It's trying to watch for any credit activity that seems out-of-place. Most systems will review information that is being reported to all three existing credit bureaus and notify you when they spot inconsistencies. Usually, you will be notified within 24 hours due to the potential urgency of the matter. Early notification helps you to limit the damage that may occur if or when your personal information falls into the wrong hands.

Are Credit Monitoring Services Worth the Cost?

Many people consider the cost of credit monitoring to be too expensive since much of it can be done free of charge by the consumer and most credit card companies now have entire departments and systems that are set up to spot and reduce fraud. On the other hand, if your credit monitoring service detects activity that would have likely gone undetected, the service has paid for itself by saving you hundreds (maybe thousands) of dollars. Here, it's worth noting that identity theft is harmful to more than your finances. It can impact many other aspects of life and take years to recover from both financially and emotionally.

Some other online services are free but monitor your credit in on a much more limited scale or by using only one reporting company. They use that data to create an estimate of your credit score and may or may not do monitoring that is similar to if you were to do your own self-monitoring throughout the year. 

As detailed here, there are several levels of credit monitoring available. Some can be done manually by the consumer, and some are more proactive. It's important to note that, while monitoring services can help combat and minimize the impact of identity theft, they will not prevent it from happening. Determine how much monitoring you're willing to pay for and the level you need to achieve the peace of mind you desire. If you don't intend to put forth the effort to actively monitor your own activity and you are somewhat worried about the potential of your identity being falsely used, the services can be worth the cost. However, if you are willing to do the work and be proactive in your own monitoring, you can save your hard-earned dollars and provide the service yourself.


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