Everything You Need to Know About Credit Monitoring

Do you know how your credit score works?  

According to one online survey, roughly 40% of Americans don’t. That’s pretty alarming.  

Your credit score is a huge aspect of your financial well-being. It’s used to determine everything from whether you’ll be approved for personal loans to what rate you’ll pay on a mortgage. That’s why it’s so important to know where your score stands—and, if it’s less than ideal, how to improve it.  

However, there are even more reasons to pay attention to your credit. Perhaps the most important is tracking errors and fraudulent activities on your credit report.  

According to the Federal Trade Commission, more than 20% of consumers have errors on their credit reports. Moreover, 7–10% of Americans fall victim to identity theft each year. Even though it’s not your fault, these errors can negatively impact your credit’s health. 

So, how can you keep an eye on your credit score?  

Take advantage of credit monitoring to track all activity on your credit report. When properly utilized, credit monitoring can help you keep your finances on the right track regardless of your current financial situation.  

In this article, we’ll answer questions like:  

  • What is credit score monitoring? 

  • What are the benefits of credit monitoring? 

  • How can you get free credit monitoring? 

  • Should you pay for credit monitoring? 

What is credit monitoring? 

Credit monitoring serves three main purposes 

  1. Alerting consumers to new credit inquiries 

  1. Tracking changes in a consumer’s credit report 

  1. Identifying and notifying consumers of potential fraud 

 To accurately track your credit, credit monitoring companies continuously cross-check thousands of databases.  

To identify any misuse of your identity, a monitoring company will look for suspicious activity, such as applications for new credit and noteworthy changes on your credit report (name changes, new addresses, etc.). If they spot any potential fraud, you'll be alerted via text or email. This enables you to deal with the situation much more quickly and effectively.  

A credit monitoring service will also alert you if they notice a decrease in your credit score. For example, maybe you took on too much debt or missed payments causing your score to fall. The monitoring company will let you know right away. Then, you can take steps to reduce your debt and get your score back up.  

If you don’t use credit monitoring, you can still keep an eye on your credit by checking your credit report at AnnualCreditReport.com. Some credit card providers may provide free monthly credit reports, as well. However, credit monitoring services are generally better if you wish to stay fully updated on the status of your credit.  

The benefits of credit monitoring 

Most importantly, credit monitoring can help protect consumers against identity theft. Detecting identity theft early is the best way to minimize the damage done by the crime.  

Too often, however, people don’t realize that identity theft has occurred until it’s too late. As Symantec Corporation, the maker of Norton AntiVirus software, states, “it’s possible for months or years to pass” without realizing that someone has stolen important personal information. 

Time is crucial when it comes to identity theft. Once a thief has successfully impersonated your identity to steal from you, the recovery process can take quite some time. The credit monitoring company Life Lock says you can usually fix the situation within a day. If you don’t notice anything has happened, however, identity theft can easily take hundreds of hours to fix.  

Therefore, credit monitoring can be a lifesaver. Detecting identity theft as soon as it happens helps save you time—and headaches—and resolve the situation as soon as possible. 

As mentioned above, roughly 4 in 10 Americans don’t really know how credit scores work. Additionally, a GoBankingRates survey found that more than 35% of Americans don’t know their credit score. This is a problem! That’s why credit monitoring services not only alert you when your credit score has increased or decreased, but also let you know why this change has happened. 

When you use a credit monitoring tool, you get real-time updates on your score. The service shows you what actions will help boost your credit score, such as making payments on time and reducing your overall debt. By taking the initiative to increase your score, you put yourself in a good position when it comes time to make a large purchase, like a new home. 

How can you get free credit monitoring? 

You can get credit monitoring services for free in a few ways: 

  1. Through your credit card provider 

  1. Through the three major credit bureaus (Experian, Equifax, and TransUnion) 

  1. Through online services such as Credit Karma, Credit Sesame and other websites 

If you have a credit card, check whether your financial institution offers a free monthly credit report. According to CreditCards.com, the following institutions and companies offer free credit monitoring services for some of their cards: 

  • Bank of America 

  • Capital One 

  • Chase 

  • Discover 

  • Citi 

  • American Express 

  • Barclaycard 

Typically, you can request to receive text or email notifications for any major changes to your credit score. Additionally, with each monthly credit report, you’ll receive a summary of your accounts’ activities and status, including: 

  • Number of late payments 

  • Age of credit accounts 

  • Credit utilization ratio (used credit vs. available credit) 

  • Hard credit inquiries 

  • Total balances 

  • Available credit 

If anything on your credit report looks inaccurate, it’s advised that you request a more detailed credit report from one of the three major credit bureaus. Then, you can take steps to rectify any inaccuracies. 

Your second strategy for free credit monitoring is to make strategic use of the free yearly credit reports provided to you. Each of the three major bureaus, TransUnionExperian, and Equifax, are required by law to provide all consumers with one free annual credit report. TransUnion recommends spreading out the use of those three credit reports throughout the year. Doing so will help ensure that you stay continually updated on your score, as well as any inaccuracies or fraudulent activities. 

If the free services provided by your institution, the credit bureaus, or monitoring websites don’t provide you with enough information, you always have the option to pay for more comprehensive credit monitoring services. In most cases, these will provide real-time alerts to any changes in your account or activity, helping you stay on top of your credit at all times.  

Should you pay for credit monitoring? 

If you’ve never been a victim of identity theft or inaccurate credit reporting, free credit monitoring may be all you need to stay secure.  

However, more comprehensive credit monitoring may be a good idea if: 

  • You've been a victim of identity theft before: You don’t want it to happen again.  

  • You’re at higher risk of identity theft: For example, your information has been compromised by a data breach. 

  • You want peace of mind: Credit card fraud, identity theft, tax fraud, and other crimes cost consumers billions of dollars each year. It’s always smart to take extra precautions.  

Plenty of reputable companies provide solid credit monitoring services. CNET recommends several that cost $10 to $15 per month (or $100 to $180 per year). That’s a good value if it prevents even one instance of identity fraud.  

Make credit monitoring work for you 

Financial literacy is the key to ensuring your financial health. Since your credit score is one of the most important metrics, you should know what it is and how it works. It’s important that you track changes to your credit score and stay in the know if anything unusual occurs.  

Credit monitoring is a valuable tool for consumers. When used wisely, credit monitoring helps prevent identity theft and reporting inaccuracies, and teaches you how to best improve your credit. In the end, that will place you on the path to financial security.  

The material presented here is for informational purposes only and does not represent specific financial advice to you or your circumstances personally.