What is Credit Monitoring?
Credit monitoring refers to a tool that alerts you of changes in your credit report and credit scores. It’s a great tool if you want to work on your credit and financial health because it allows you to watch your progress and adjust your behavior to reach your credit goals. When you monitor your credit report, you can more effectively avoid obstacles that can stand in your way of borrowing in the future.
Why is Credit Monitoring Important?
Here are the reasons why it’s important to monitor your credit report and credit scores.
Identity Theft Protection
When it comes to identity theft protection, credit monitoring allows you to spot signs that your information is being used fraudulently. According to the AARP, one in four people has reported being a victim of identity theft. With credit monitoring, you have the advantage of acting quickly before identity theft becomes financially damaging.
If you’re not planning and managing your finances in advance, it can make things difficult in the long run. Credit monitoring shows you how you’re performing in the categories that affect your credit score. Things like your payment history, credit utilization, types of accounts, and other important factors, can show you need to adjust to achieve your credit goals. The better your score, the more financial opportunities you can have for securing a good deal on a mortgage, auto loan, credit card or other resources.
What does Credit Monitoring do?
To understand how credit monitoring works, it’s important to understand what a credit report is. A credit report consists of the data collected about you by a credit reporting agency. It holds information about how you have managed debt and contains your identification data, including your full name, bank accounts and credit lines opened, missed payments, loans, address, SSNs and other identifiable information tied to you.
The United States has three major credit reporting agencies, and each maintains credit files of American consumers.
Here are the activities that might trigger credit monitoring alerts:
- Hard inquiries on credit reports, which can occur when financial institutions run credit checks after someone submits loan or credit card applications
- New accounts open in your name and added to your credit reports, including credit cards and loans
- Payments and balances on your credit products that you didn’t actually make
- Name changes or new addresses added to your credit file
- New public records, such as information on court judgments and bankruptcies.
What Does Credit Monitoring Not Do?
Credit monitoring services do a lot to keep you aware of where your credit stands, but here are things that credit monitoring does not do:
- Stop someone from applying for credit in your name.
- Keep your personal identifiable information safe from data breaches
- Set credit freezes and fraud alerts.
- Stop phishing emails.
Credit Monitoring Tips
Once you sign up for credit monitoring, these are some tips you can keep in mind to help avoid identity theft-related fraud:
Tailor your notification preferences
To help you stay on top of your credit scores, tailor your notification preferences according to your lifestyle. For example, if you check text messages more than email, set your alerts accordingly.
Act on suspicious changes
If you find something potentially fraudulent or inaccurate, don’t wait to take action. You can act on suspicious activity by doing the following:
- Apply a credit freeze. Credit monitoring is not the same as freezing your credit. A credit freeze makes your credit report inaccessible, so a fraudster can’t open new accounts in your name. However, you cannot apply for a line of credit with a credit freeze as well.
- Place a fraud Alert. A fraud alert is a notice on your credit report that notifies creditors if your information has possibly been compromised. Placing a fraud alert makes it harder for fraudsters to open unauthorized accounts in your name because it requires a more strict identity verification process.