What is Credit Monitoring? How the Practice Can Help Safeguard Your Finances

Credit monitoring is a process that involves tracking your credit reports and scores so you can quickly identify any changes or suspicious activity, allowing you to detect potential fraud and take action to protect your credit.

In this guide, I’ll explain how to monitor your own credit or hire someone else to do it and the benefits of each approach.

The three main credit bureaus in the United States are Experian, Equifax, and TransUnion. These agencies collect, maintain, and report information about consumers’ use of credit. If you’ve ever used credit, these reports detail your credit history and current credit status.

Credit bureaus collect information from creditors (e.g., credit card companies and lenders) that includes your payment history, debt amounts, and the number of accounts you have. They also track public records for bankruptcies and court judgments. 

Each bureau compiles the information it receives into a monthly credit report and then uses it to calculate your credit score. The dominant consumer scoring system is FICO, but the bureaus may also report scores from VantageScore and other credit models.

Creditors, employers, landlords, and other interested parties can check your credit reports and scores to gauge your creditworthiness and reliability. Most lenders and credit card issuers pull at least one report when you apply for a new card or loan. 

Your credit reports are crucial factors in your credit score. That alone is reason enough to monitor them, as they may report fraudulent activity, including unrecognized accounts, unauthorized transactions, and missing or incorrect payments. Errors and fraud can drain your money and seriously damage your credit score.

Credit monitoring services from credit bureaus, credit card issuers, and third-party organizations can alert you to score changes and allow you to respond quickly to potential fraud and identity theft. 

Credit monitoring is usually free or inexpensive, so there is no reason not to use it to protect your money and reputation. Let’s examine the benefits of credit monitoring.

Early Fraud Detection

Credit card fraud occurs when someone uses your card number to make purchases or withdraw money without your permission. This can happen in several ways:

• Lost or Stolen Cards: Someone may find or steal your physical credit card and use it to make purchases or withdraw cash.
• Card-Not-Present Fraud: Even if they don’t have a physical card, a thief can use your card number, expiration date, and security code to make purchases online or over the phone.
• Skimming: A skimmer is a device that thieves can surreptitiously install onto ATMs, gas pumps, or payment machines. It allows thieves to copy your card information when you make a purchase. Thieves use this information to create fake cards or make online purchases.
• Phishing: Thieves can trick you into disclosing your card information through fake emails, malicious websites, or devious phone calls.
• Data Breaches: Hackers may break into company databases and steal credit card information. They may use this information themselves, sell it on the dark web, or post it publicly. 

Credit card companies and credit monitoring services closely monitor your financial activity. They alert you to new or suspicious events, such as when someone opens an account in your name, or an unusual transaction occurs.

Timely credit monitoring can prevent or limit financial nightmares. When you receive an alert about potential fraud, please freeze your accounts and notify your bank or credit card company—report fraud to local police, the Federal Trade Commission, and the Consumer Financial Protection Bureau.

This quick response can prevent thieves from doing more damage to your credit score. Fraud could go unnoticed for months without timely alerts, and you may find yourself in a financial bind that requires a lot of work to fix. 

Using credit monitoring services lets you stay informed about your credit status and act immediately to address any problems. This helps you protect your money and reduce damage from identity theft.

Maintaining Healthy Credit 

Your credit score is an estimate of how well you manage debts and payments. Creditors use it to determine how likely you are to repay any money they lend you. The higher your credit score, the better. Watch it to see if your habits are good or bad for your credit. A sudden drop means you have a problem you must address.

Paying your bills on time is the most important thing for good credit. Payment history makes up 35% of your FICO score. Another 30% comes from how much debt you have, so try to keep your balances low.

You don’t want to open multiple credit accounts too quickly. Each time you apply for credit can slightly impact your credit score. Only apply for new credit when necessary, preferably waiting six months between applications.

Look at your credit report regularly to ensure that all information is correct. If you see mistakes, contact the credit bureau to dispute them.

You can track changes in your credit health by monitoring your credit scores and reports. A rising score means you’re managing your credit well. If it goes down, look at your credit report to see why. 

You may have missed a payment or used too much credit. Credit monitoring services alert you to credit score changes so that you can keep up to date.

It is best to catch any problems early. The longer you wait, the harder it is to fix the situation.

Understanding Your Credit Report

It’s essential to check your credit report regularly. You can get copies of your credit reports directly from the credit bureaus or AnnualCreditReport.com as often as once per week. By doing this, you become familiar with your reports’ structure and contents so that you can see how it changes over time. 

Your credit report includes details about your credit accounts, payment history, and public records such as bankruptcies. All credit reports include the following information:

1. Personal Information: This section includes your basic details, including your name, address, Social Security number, date of birth, and employment information. 
2. Account Information: Here, you’ll find details about your credit accounts, such as credit cards, loans, and mortgages. Each account entry shows the creditor’s name and type of account. The balance owed, credit limit or original loan amount, and payment history indicate whether you made timely payments.
3. Public Records: This section lists public records about your financial history, including bankruptcies, foreclosures, and tax liens. These entries can significantly impact your credit score.
4. Credit Inquiries: There are two types. Hard inquiries occur when a lender checks your credit report to make a lending decision. Too many hard inquiries can lower your credit score. Soft inquiries happen when you or others check your credit for reasons other than opening an account. Soft inquiries do not affect your credit score.
5. Personal Statements: You can add personal statements to your credit report to explain specific information, such as why you missed a payment or disagreed with creditors. Anyone who checks your credit reports can read your statements.

You can spot errors such as unfamiliar accounts/activity or unauthorized hard inquiries when you check your reports often. Regularly reviewing your credit report helps you keep your credit healthy because you can:

• Detect Errors Early: Your credit report can have mistakes, such as incorrect account details or payment history. Catching these errors helps you correct them before they affect your credit score.
• Spot Fraud Quickly: Regular checks can help you identify any unauthorized accounts or charges. You can quickly respond to stop further fraud and limit damage to your credit.
• Monitor Your Credit Health: By monitoring your credit report, you can see how your financial habits affect your credit score. This feedback helps you improve your financial decisions.
• Prepare for Major Financial Decisions: Knowing your credit tells you what lenders will see if you plan to apply for a loan or mortgage. You can then address any issues beforehand.

Credit monitoring puts you in charge of safeguarding your financial reputation. In this case, what you don’t know can hurt you.

You want comprehensive information when you subscribe to a credit monitoring service. This should include notifications, customization options, credit score tracking, and identity theft protection. Let’s examine each in more detail.

Alerts and Notifications

Whatever service you choose should allow you to specify a wide range of alerts you can customize according to your preferences. The following list summarizes the types of alerts and notifications you may receive:

• New Account Alerts: When a new credit account is opened in your name
• Hard Inquiry Alerts: When a lender checks your credit report for a loan or credit application
• Change of Address Alerts: When your address is updated on your credit report
• Public Records Alerts: Notifications about new public records, such as bankruptcies or liens, are added to your report
• Suspicious Activity Alerts: Notifications about unusual activity, like large purchases or multiple new accounts opened quickly
• Credit Limit Changes: When the credit limit on one of your accounts increases or decreases
• Late Payment Alerts: When a late payment is reported to your account
• Account Balance Changes: When there is a significant change in the balance of your credit accounts
• Personal Information Changes: When personal details, such as your name or phone number, are updated
• Debt Collection Alerts: When an account is sent to collections

Credit monitoring services usually let you customize your alerts. You can choose the frequency of alerts, such as real-time alerts that notify you immediately of any changes and daily or weekly summaries. You can also select the alerts you want to receive, including new account alerts, credit limit changes, and balance changes. Moreover, you can customize these to focus on specific accounts or transaction types.

Credit monitoring alerts can be sent via email, text, or push notifications on a mobile app. You can choose which accounts to monitor and set limits so you only get alerts for changes above a certain amount, such as $500 for balance changes or $100 for transactions. 

You can also adjust settings to get alerts for minor or significant suspicious activities. Time-based alerts let you pick specific times to get notifications, and geographical alerts can notify you about activities in certain locations. 

Credit Score Trackers

Credit score tracking services regularly check your credit scores from the major credit bureaus and alert you when things change. You can usually get the information from an online dashboard or emailed reports that show how your score has changed over time.

You need to understand credit score factors when using credit monitoring services. FICO has five significant factors:

• Payment History (35% of total score): This shows whether you pay bills when due
• Amounts Owed (30%): Gauges how much debt you have compared to your credit limits and income
• Length of Credit History (15%): The longer you’ve had credit accounts, the better off you’ll be
• Types of Credit (10%): Managing different types of credit can boost your score
• New Credit (10%): Applying for a lot of new credit can hurt your score

Understanding these factors helps you see how different actions impact your credit score. For example, your score should rise if you pay off a credit card and never miss a payment date.

Credit score tracking can also help you spot potential fraud. For instance, unauthorized activity may suddenly drop your score without reason. You should address the issue immediately if you notice any signs of fraud. 

Identity Theft Protection Features

Nothing is as important as the ability to detect signs of identity theft. Credit monitoring services sometimes charge an extra fee for comprehensive identity theft protection, including insurance, but this may be worth it, depending on your situation.

The following examples show what identity theft protection features you can expect from a good service provider:

• Credit Monitoring: Regularly checks your credit reports for unusual activity and alerts you to changes
• Identity Monitoring: Watches for your personal information on the dark web and alerts you if it’s found
• Fraud Alerts: Places alerts on your credit files to warn creditors to take extra steps to verify your identity before opening new accounts
• Credit Freezes: Allows you to freeze your credit to prevent new accounts from being opened in your name without your permission
• Lost Wallet Protection: Helps you cancel and replace lost or stolen cards quickly
• Recovery Assistance: Offers expert help to restore your identity if you become a victim of identity theft
• Insurance: Provides coverage for expenses related to identity theft recovery, such as legal fees and lost wages
• Educational Resources: Offers tips and advice on protecting your personal information and avoiding scams
• Customer Support: Provides access to support professionals who can answer questions and guide you through identity protection steps

Be careful with identity theft insurance. It usually only covers certain costs, such as legal fees or lost wages, not the stolen funds. Some policies don’t cover online fraud or tax identity theft. You may also have to pay a deductible before the insurance kicks in. There may also be limits on how much the insurance will pay. 

If your head is swimming from all this talk about credit monitoring, here are some tips for choosing a beneficial service.

Compare Free and Paid Options

When choosing a credit monitoring service, pick one that fits your situation. Consider what features you need, such as credit score tracking, fraud alerts, and identity theft protection. Also, consider your budget and whether you want to use a free service or pay for more features.

Critical Differences Between Free and Paid Options

Credit cards often provide free credit monitoring, while other providers charge a fee. Let’s compare the two types:

• Features: Paid services offer more features, such as daily credit report checks, dark web scans, and identity theft insurance. Free services usually only track your credit score and alert you to significant changes.
• Coverage: Paid options usually check all three major credit bureaus. Free options may only check one bureau.
• Support: Paid services often include customer support and help if your identity is stolen. Free services may offer little or no support.

If you’re on a tight budget, consider a free service from a credit card or a low-cost paid service. You can pay more for extra protection if you can afford it.

Here are some pros and cons of both free and paid services to help you make the decision:

As you can see, each type has some benefits and drawbacks. With paid services, you get more information and features, but free services may be a better place to start your credit monitoring journey.

Evaluate Features and Benefits

Free services usually monitor just one score, which may be something other than FICO. All services offer some alerts, but the more expensive ones provide a greater variety.

Paid credit monitoring services vary in price based on their features and level of protection. Basic plans typically cost between $10 and $15 per month. They usually include monitoring for one or two credit bureaus, basic alerts, and customer support.

Mid-tier plans range from $15 to $25 per month. They often cover all three major credit bureaus and provide more detailed alerts, identity theft insurance, and essential identity theft recovery assistance.

Premium plans can cost $25 to $40 or more per month. They offer comprehensive coverage, including dark web monitoring, extensive identity theft recovery services, higher amounts of identity theft insurance, and detailed credit reports.

Some services also offer annual plans, which can provide a discount compared to monthly payments. The exact price varies based on the provider and any promotional offers they might include. 

Read Reviews and Testimonials

Customer feedback gives you real-world evidence as to how well a service works. It can tell you about the service’s ease of use, the effectiveness of its alerts, and the quality of its customer support. Reviews can also highlight the strengths and weaknesses of a service.

To find reliable reviews, start with reputable websites specializing in financial products. Websites such as Consumer Reports and BadCredit.org may review credit monitoring services. 

Look for detailed reviews that cover various aspects of the service. Avoid relying solely on the reviews on the company’s website, as they might only show positive feedback.

The Better Business Bureau (BBB) and Trustpilot are excellent sources for reliable reviews. The BBB provides ratings based on customer complaints and how the company resolves them. 

It also offers a letter grade that reflects the company’s overall reliability and performance. Trustpilot allows users to rate and review companies.

Other good sources of reviews are online forums and discussion groups. Websites like Reddit or personal finance forums have conversations where users share their experiences with different services. These platforms can provide honest, unfiltered opinions.

In 2023, the Federal Trade Commission collected 1 million reports of identity theft in the United States, and consumers filed more than 5.39 million complaints about fraud during that year. 

The need for credit monitoring has never been more apparent. You have plenty of free and paid options, so research and select the right one for your financial situation.