The Right Way to Monitor Your Credit

2014 was a banner year for huge consumer data breaches. From news of the Target attack in January to the massive Home Depot credit and debit card thefts, we all learned that identity and credit card theft is becomming a bigger and bigger problem for all of us.

Retailers commonly respond to data breaches by offering free credit monitoring services. Do they help? Maybe, but probably not as much as you think. They will help if it is too difficult for you to look through your own free credit report and make sense of everything listed in the report. While some of the services offer identity theft insurance, most of that coverage only duplicates coverage consumers already have, under existing laws or credit card zero liability rules.

The monitoring services normally do not tell you if a new wireless service has been taken out in your name, and they do nothing to monitor your bank accounts or retirement account transactions. They also don’t watch for fraudulent charges on your existing credit card accounts. And they don’t stop tax fraud, medicare fraud or Social Security fraud. The monitoring services will not alert you if a bad guy uses your social security number to nab your tax refunds.

In short, the credit monitoring services will only catch a small percentage of the crimes that can be committed with a consumer’s identity. And the free credit monitoring services might also give you a false sense of security, leading to further problems if you don’t take other basic steps to protect yourself.

So what can you do? By all means, review your credit card and bank account statements on a monthly basis. You should also check your own credit report every four months - it’s free. Make sure to clean up any errors you find. If you’ve been victimized in the past, you should also put a free 90-day fraud alert on your credit file. You can do this simply by filing a fraud alert — sometimes called a “security alert” — with any of the three major credit bureaus: EquifaxExperian, or TransUnion.

Another, even more secure option is to place a full security freeze on your own credit, which prevents anyone from opening a new account in your name (you can lift the freeze temporarily for your own needs with a PIN if you need to legitimately open a new account). The standards for placing a freeze vary by State - in Minnesota there is a $5 fee. Finally, consider opting out of unsolicited credit card or insurance offers to prevent mail thieves from using them. 

If you elect to have credit monitoring, there are free services available, such as Credit Sesame or Credit Karma. But remember that you cannot rely on credit monitoring alone.

Is some of this a pain in the rear? Sure. But once you get in the habit of checking your bank account statements, credit card statements (at least monthly) and credit reports (at least every six months), you’ll find that it’s an easy way to protect yourself.

About the author: Dan Cooke

Image credit: Simon Cunningham