Why You Should Monitor Your Credit

Why You Should Monitor Your Credit

Thanks to the internet, monitoring your credit report and credit score is easier than ever... helping us all stay one step ahead of identity theft. 

First and foremost, you do not NEED to pay for a credit monitoring service to stay on top of your credit status. For those that want to hire a monitoring firm, the service is provided by several different companies and the reviews are generally favorable. For those who are inclined to do-it-yourself, all three major credit firms (Equifax, Experian, TransUnion) allow individuals to access their credit report once per year for free. There is nothing wrong with choosing either fork in the road (as Yogi Berra might say).

First, let's briefly explain the difference between a credit report and a credit score. A credit report is an itemized list of all accounts from which you can draw credit - the two most common examples are credit cards and mortgages. Reports also typically show the "status" of the account (paid-on-time, late, closed). A credit score is a numerical calculation of your creditworthiness, i.e. how likely you are to pay your debts. Scores range from 300 to 850. A score above 700 is considered "good" or "excellent" while a score below 600 is considered "bad" or another not-so-good adjective. The score is calculated using information about your total available credit, the amount of credit you use, length of account history, and types of credit. Put simply, someone who has held only one or two credit cards for decades and pays all of his bills on-time will likely have a favorable credit score. Someone who has a drawer full of credit cards and always pays them late will have an unfavorable score. Someone who has never borrowed (or attempted to borrow) a dime will have no credit score.

Do-It-Yourself

The primary benefit of DIY credit monitoring is that it won't cost you anything. You can download a copy of your credit report every four months (if you want to check it that often), and many credit card companies now offer your credit score for free on their websites. American Express and Discover are two examples. However, it is your responsibility to understand what you are reading and react if something seems amiss. It is important to mention that most credit cards are issued through banks. If you notice an account called "XYZ Bank," instead of "Visa," that could be perfectly normal; check your card to see if, indeed, XYZ Bank issued it.

If you do find a discrepancy on your credit report and you have double-checked and re-checked every item for accuracy, it's important to call the credit firm immediately to open an inquiry. All three firms have departments that specifically handle these types of inquiries. You may also want to check with the other two credit firms to see if they also have record of the same suspicious account.

Credit Monitoring Services

Credit monitoring services have come into the mainstream in the past decade. They offer several different types of services, including credit monitoring and credit lock. Put simply, a credit monitoring service offers to keep an eye on your accounts so you don't have to. This may seem silly, considering it's so easy to monitor your credit yourself with the tools available online. The reality, however, is that the majority of people simply do not have the time (or memory or ability) to keep an eye on their credit, and a pair of trained eyes provides welcome assistance. Here are four reasons why people commonly hand the responsibility over to a professional:

  • Identity theft can occur at any time: You may be diligent in checking your credit reports three times a year, but an identity thief could be at work right now. A credit monitoring service can report to you on weekly or monthly credit activities which can alert you much sooner.
  • All credit reports are not created equal: Each credit reporting company compiles and reports data in its own way. Not only do you have to decipher one credit report for vital information you have to be able to translate between three credit reporting languages. A good monitoring service will decipher the data for you a present you with the essential information you need to determine what changes have occurred in your credit status.
  • You can only monitor one credit reporting agency at a time: Most credit monitoring services provide comprehensive coverage of all three credit reporting agencies at one time. This could be very important because not all agencies report activities in the same manner at the same time.
  • Your time is worth far more than the $10 to $20 a month they cost: The reports provided by credit monitoring services will save you hours of time. The reports are specific to changes in credit status, new activities, account openings and closings, and anything that affects your credit standing providing you with everything you need to know at a glance.

Your credit standing is priceless. Whether you are trying to improve your score, rebuild your credit, or keep a vigilance over theft and fraud, the actual out-of-pocket cost of a monitoring service is just a fraction of what your costs will be should your identity be stolen, or your credit score falls unnecessarily. Anytime it is absolutely essential that something be done right, the cost should be thought of as an investment, not as an expense.

*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2014-2016 Advisor Websites.

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