How Does Credit Monitoring Work?
Credit monitoring services connect to one or more of the three major credit bureaus—Equifax, Experian, and TransUnion—to track your credit files. When a key change occurs, the service sends you an alert via email, text, or a mobile app notification.
The process generally follows these steps:
- Enrollment: You sign up for a service and provide personal information to verify your identity.
- Scanning: The service continuously scans your credit reports for specific activities.
- Alerts: When a predefined event happens, such as a new loan application or a change of address, you receive an alert.
- Review and Action: You review the alert. If the activity is legitimate, no action is needed. If you don’t recognize it, you can take immediate steps to investigate potential fraud or dispute an error.
What Do Credit Monitoring Services Track?
While features vary, most credit monitoring services watch for changes that could impact your financial health, including:
- New Accounts: Alerts for any credit card, loan, or line of credit opened in your name.
- Hard Inquiries: Notifications when a lender checks your credit after you’ve applied for a loan or credit card.
- Personal Information Changes: Updates to your name, address, or phone number listed on your credit report.
- Public Records: Filings for bankruptcy. Note that as of recent changes, civil judgments and most tax liens no longer appear on consumer credit reports.
- Negative Information: Reports of missed payments, accounts sent to collections, or foreclosures.
- Credit Limit Changes: Significant increases or decreases to the credit limits on your existing accounts.
Free vs. Paid Credit Monitoring: Which Is Right for You?
Credit monitoring is available at different price points, and the best choice depends on your needs. Free services offer essential protection and are a great starting point for anyone looking to keep an eye on their credit.
Paid services provide more comprehensive protection, often including three-bureau monitoring, more detailed alerts, and identity theft insurance. This may be worthwhile if you have been a victim of identity theft in the past or want the highest level of security.
Under federal law, you are also entitled to a free copy of your credit report from each of the three bureaus once every 12 months through AnnualCreditReport.com. Reviewing these reports is a critical, proactive step in managing your credit health.
What to Do After a Fraud or Error Alert
Receiving an alert for an activity you don’t recognize can be stressful, but it means the system is working. Here’s how to respond:
- Confirm the Activity: First, make sure the alert isn’t for a legitimate transaction you forgot about.
- Report Identity Theft: If you suspect fraud, immediately place a fraud alert on your credit file by contacting one of the credit bureaus (they are required to notify the other two). For even stronger protection, consider a credit freeze, which restricts access to your report.
- File an Official Report: Visit IdentityTheft.gov, a resource managed by the Federal Trade Commission (FTC), to create a personalized recovery plan and file an official report.
- Dispute Errors: If the alert reveals an error, you have the right to dispute it with the credit bureau and the company that reported the information.
Common Myths About Credit Monitoring
Understanding what credit monitoring can and cannot do is key to using it effectively.
- Myth: It prevents identity theft. Reality: Credit monitoring is a detection tool, not a prevention tool. It alerts you to suspicious activity after it has occurred, allowing you to react quickly. A credit freeze is a preventative measure that blocks access to your file.
- Myth: It automatically fixes errors. Reality: The service only notifies you of potential errors. You are responsible for filing a dispute with the credit bureaus to have them corrected.
- Myth: It’s the same as a credit freeze. Reality: Monitoring is a passive alarm system, while a freeze is an active lock. They serve different purposes but work well together to provide comprehensive protection.
By using credit monitoring wisely, you can stay informed about your financial footprint and safeguard yourself against costly errors and fraud.
