3/26/2012 10:00 AM
Here’s an email I recently received about a credit monitoring service. If you don’t use one of these personally, you’ve almost certainly seen the ads for them…
I have become quite a fan of Money Talks News. Because of your advice, I was able to permanently rid myself of a collection agency trying to collect a 19-year-old credit card balance from a company I had NEVER done ANY business with. (Gone 2 years…Thank you!!) I followed up by contacting the State Attorney General and the Secretary of State.
My question is: I now pay $9.95 each month to Tru-Credit, which purchases access to my credit report and credit score any time I want. In addition, I receive an email weekly, outlining any "activity" (or lack there-of) in my credit account. "Fraud Alert" is included in the $9.95 cost. I would appreciate your opinion on this service and it’s cost.
Thanks for the very helpful, down to earth, Money Talk News!!!
Thanks for the kind words, Jim! And for the great question. Here’s your answer…
Suppose you could make a living – or even a bundle – instilling fear in people, then charging them for services they either don’t need or could get free. Would you feel bad about that? If you answered yes, you’re probably not a credit reporting agency or other vendor of credit monitoring services.
Converting fear into fees
They say sex sells, and I’m sure they’re right. But I doubt it outsells fear. From burglar alarms to bomb shelters, Americans shell out billions annually to protect against all manner of evil: some real, much greatly exaggerated. But wherever fear can be churned up, you can bet there’s someone not far behind making a buck.
Such is the case with credit monitoring.
In 2006, The New York Times reported that credit monitoring was a billion-dollar business, with more than 12 million Americans paying for "protection" against ID theft and greater access to their credit histories and scores. The biggest beneficiaries? The Big Three credit reporting agencies: Equifax, Experian, and TransUnion. According to the same article, this business – which didn’t even exist 15 years ago – was growing at 20 percent annually.
Why you don’t need credit monitoring
These services are more sizzle than steak for at least three reasons…
1. You’re not liable if someone opens credit in your name.
If someone forges your signature on a credit application, check, or anywhere else, you’re generally not responsible for the charges. As with anyone stealing anything, the thief is liable. And if the thief isn’t caught or can’t make restitution, it’s a problem for the institution that accepted the fraudulent charge, not you.
Of course, we’ve all read stories of how credit fraud (like shoplifting) is passed along to consumers in the form of higher prices. We’ve also read about the nightmare than ensues when your identity is stolen: Your credit is trashed and you’re forced to spend months – even years – restoring it.
So why isn’t credit monitoring money well spent? Well, because…
2. Credit monitoring doesn’t prevent ID theft.
Monitoring your credit is marketed as if it’s a burglar alarm that keeps bad guys out. But what it more closely resembles is an alarm that’s tripped as the bad guys are leaving. By definition, credit monitoring can only monitor transactions that have already occurred. What you want is to prevent them from happening in the first place.
As it happens, dissuading crooks from making off with your identity and going on a spending spree isn’t hard to do, and it doesn’t cost a dime. Just put a fraud alert on your account. According to Experian, "Fraud alert messages notify potential credit grantors to verify your identification before extending credit in your name in case someone is using your information without your consent." Doesn’t that seem like a good idea? It costs nothing and there aren’t a lot of hoops to jump through. Take a look at the form and see for yourself.
Fraud alerts aren’t new. I recommended them in 2009: see Free ID Theft Protection. According to this page of FTC website, they’re only supposed to be used by "people who’ve had their ID stolen – or who suspect it may have been stolen." But isn’t that everyone these days?
So fraud alerts are one way to slow crooks down. An even more effective method is a credit freeze. A freeze means nobody – including you – can open new credit until your account is "thawed," a process that can take a few days.
Unlike fraud alerts, depending on where you live, these aren’t always free or even available, and some states also allow fees to temporarily lift the freeze. Read more about credit freezes at this page of FTC.gov and learn about the rules in your state at this page of the Consumers Union website.
Here’s one final reason I’m not a fan of credit monitoring…
3. It costs too much.
Against a backdrop of $11 for a credit report or $20 for a credit score, paying $10 a month for unlimited looks may seem like a bargain. But considering what they charge wholesale clients, it’s outrageous. According to the New York Times article above, while credit reporting agencies are allowed to charge you up to $11 to see your credit report, they routinely sell them to corporate clients for as little as 20 cents.
More outrageous in my opinion is the fact that you should need these services in the first place. Unless you’re the one who negligently leaves their credit information lying around, you shouldn’t have to worry about your credit history being stolen, and you shouldn’t have to jump through hoops if it happens. The banking and credit reporting industries make billions of dollars annually from American consumers. If they can’t be bothered to create a system that protects the information they collect, sell and use to grant credit, they should solve – and pay for – the problems that result.
But instead of creating a safer system, they craft clever commercials to sell you "protection."
Is it all bad?
There are those who disagree with me and tout credit monitoring and protection as a smart thing to do. For example, in this article, personal finance author Lynnette Khalfani-Cox says, "the single biggest reason to use credit monitoring is that you’ll receive an incredible amount of credit education simply by staying on top of your credit. The mere act of constantly reviewing your credit files and being aware of changes to your credit profile promotes enhanced financial literacy and better credit awareness."
Monitoring your credit is a good educational experience. And if you’re going to be applying for a mortgage or other big loan, the three free reports you’re entitled to yearly from annualcreditreport.com may not be enough. But pay $10 a month or more for "education?" I’ve managed to keep my credit pristine without it. So can you.