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Should You Buy Credit and Identity Theft Monitoring?

Credit Score, Personal Finance
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Should You Buy Credit and Identity Theft Monitoring?

Think of credit and identity-theft monitoring as something like a burglar alarm. They let you know after an intruder has gotten in — but they’re no substitute for a deadbolt.

First, let’s start with what a monitoring service cannot do.

  • It can’t prevent identity theft or credit card fraud.
  • It can’t keep you from receiving phishing emails — or from opening them.
  • It can’t keep someone from applying for credit in your name.
  • It won’t monitor your credit accounts for suspicious charges.
  • It won’t monitor your bank and investment accounts.
  • It won’t correct errors on your credit report.
  • It won’t stop taxpayer identity theft.

But a monitoring service will do some things you might not. For starters, it actually will check your credit scores and reports — something you may mean to do but forget.

Here’s what a credit monitoring service typically does:

  • Alerts you to changes in your credit report by phone, text or email.
  • Lets you know if someone has applied for credit using your information.
  • Tells you when your credit score changes.

An identity-theft monitoring service may add some features, including public record searches, virus protection software, and monitoring chat rooms and/or black market websites. Some also offer counseling and up to $1 million to cover the cost of restoring a compromised identity. (Any money stolen is typically covered by zero-liability policies at most financial institutions, and many homeowners and renters policies include identity theft insurance.)

Using a credit card without permission is the most common form of identity theft, and unauthorized use of an existing bank account is close behind. About 20% of identity theft involves using information fraudulently, either to collect government benefits or to create new accounts.  According to the Department of Justice, 17.6 million Americans ages 16 or older (about 7% of us) were victims of some form of identity theft in 2014.

Expect to pay $15 to $25 a month for a monitoring service.

Be your own credit monitor

Credit monitoring is a job you can do yourself if you’re willing to take the time.

Numerous credit cards and personal finance websites offer free credit scores. Look for one, such as NerdWallet’s, that also offers free credit report information. That lets you watch for fluctuations in your score and check your report at will.

Also, federal law requires each of the three major credit reporting agencies — Equifax, Experian and TransUnion — to give you a free credit report once a year. Identity theft experts recommend checking those in-depth reports one at a time, four months apart.

If you feel intimidated by the language and abbreviations in credit reports, a credit-monitoring service can help make some of that more understandable, but so can numerous resources on the Web.

You must flag any errors you find. Here’s how.

Be your own identity-theft monitor

You can protect your identity on your own as well, and more effectively than a service.

Chi Chi Wu, an attorney with the National Consumer Law Center, says monitoring is “at best a second-tier solution” for identity theft.

What works best? In the case of credit, you can use a credit freeze (also called a security freeze) to block anyone — an impostor, or even yourself — from using the information in your credit files to apply for credit. The freeze can be lifted with a personal identification number, but that usually takes some time. If you’re standing in line at a retailer and want to apply for a new card to “save 25% on today’s purchases,” you probably won’t be able to.

Wu and many other identity theft experts consider a security freeze superior to any monitoring service for the purposes of preventing identity theft.

Many states allow credit bureaus to charge (usually up to about $10) for credit freezes, and some also charge to temporarily thaw your credit. Make sure you freeze your credit with all three major credit bureaus.

A less drastic alternative is a fraud alert. It won’t keep you (or someone else) from being able to apply for credit in your name, but it’s likely to slow down approval, because it requires some extra verification that it was really you who applied for credit. A fraud alert lasts for 90 days, and it’s renewable. And if you have been a victim of fraud, you can get an alert that lasts seven years.

Another simple way of making things more difficult for would-be fraudsters is to reduce the amount of junk mail you get in the way of preapproved offers. The Fair Credit Reporting Act gives you the right to opt out of receiving such offers. (Visit OptOutPrescreen.com to do it.)

To detect medical identity theft, subscribe to any available email alerts for when your health insurance pays a claim, so you can check to be sure it’s legitimate.

When identity theft monitoring is free

If you’ve been a victim of a data breach, you’ve probably been offered a year of free identity-theft monitoring.

There’s no reason not to accept the free service after you’ve read the fine print and understand when it will end and/or how to cancel. But credit monitoring shouldn’t lull you into complacency, thinking that because someone else is watching your credit, you can be less vigilant.

For example, the free service you are offered might include monitoring from just one of the three major agencies, and then only for one year. Hackers can use your stolen information to apply for credit at businesses that check another bureau, or after the free service has expired.

What to look for in a monitoring service

If you decide to pay for identity theft or credit monitoring services, the Privacy Rights Clearinghouse recommends you look for:

  • Daily or even real-time monitoring.
  • Reporting from all three major credit agencies.
  • Unlimited access to credit reports.
  • Unlimited access to credit scores.
  • Services you cannot perform yourself for free (see above). Additional monitoring may cover search engines, blogs, chat rooms, public records and online directories.
  • Computer security software.
  • ID recovery assistance, which can range from offering free forms to contacting creditors on your behalf. Some offer legal assistance as well.
  • Identity theft insurance, which can cover your actual financial losses, if any, and the costs incurred in restoring your identity.

Bev O’Shea is a staff writer at NerdWallet, a personal finance website. Email: boshea@nerdwallet.com. Twitter: @BeverlyOShea.  


Image via iStock.