Are credit monitoring services a waste of money?

Updated 7.29.24

Credit monitoring services sure have gotten popular over the last few years.  While I will refrain from saying it’s a waste of money for everyone, I will outline a few of the reasons why I believe they are incorrectly marketed and might not contain as much value as they claim to have.

1. False pretense by definition

Credit monitoring services often bill themselves as being “protection” from identity theft.  This leads a person to assume that it would be harder or even impossible to have your identity stolen if you enroll in such service. However, monitoring credit can logically only detect a previous instance of misuse rather than instantaneously catch and successfully prevent such a breach. Paying money to a credit monitoring service in the hopes you’d prevent identity theft is somewhat akin to believing that aspirin is as effective as a bicycle helmet. (Granted, in the case you fall off your bike, a couple pain pills might certainly be helpful, but having a pocket full of them wouldn’t prevent an injury from happening in the first place.)

2. There is no free lunch

Often the biggest benefit that credit monitoring services claim is access to free credit scores that accompany memberships. Most often the credit scores are not FICO scores and are therefore just random numbers that aren't used in any actual lending process. Since the value of knowing your credit score is seeing how it relates to one’s lending or credit capacity, a score that isn’t FICO is worthless. In the case where there are legitimate FICO scores offered, you are going to pay for it with the increased cost of the credit monitoring service. It’s sort of the same thing as restaurants that advertise “Kids Eat Free." While it can be a method for both parents and kids to have a meal outside the home, it’s hard to passionately argue that eating in any restaurant is the most cost-effective way to feed kids.

3. Insurance is mostly pointless

The insurance that is embedded with credit monitoring programs really only considers claims for out-of-pocket expenses directly related to identity theft. Companies selling services highlight "fear" statistics, like citing identity theft as a $37 billion a year problem, but they fail to specify that corporations are overwhelmingly responsible for the bulk of these costs and not individuals. As long as the incident is reported to both the creditor and included in a police report, the actual individual damages are typically minimal (if non-existent), since most accounts issued by creditors and bank contain their own zero liability protection.

The implied need for the insurance can further be exaggerated by the policy size, which can be as much to $1 million in coverage for some providers. The reality is, unless you’re hiring Eric Clapton to make those calls for you, you’d never use it as much to justify the cost of the premium. After all, the average amount lost by a victim of identity theft is said to be $631.

Recognize the real threat of identity theft and protect yourself. Just because paying for credit monitoring servicing won't really protect you from identity theft doesn’t mean you should ignore the problem altogether.

Here are some steps to help you safeguard you credit on your own:

• Credit Freeze. This is available to people who have been victimized by identity theft in the past or to everyone else for a small fee. Credit freeze directly stops or deflects incidents of identity theft, because it completely shuts down your credit from being accessed by outsiders. You are provided a PIN number so you can unlock your credit on days you wish to apply for products.
• Monitor Credit Regularly.  You can access your credit reports for free via annualcreditreport.com. Before COVID-19, you could receive one free credit report per year from each of the three credit reporting bureaus (TransUnion, Equifax and Experian). Since COVID-19, the bureaus are offering a free pull WEEKLY.
• Look over accounts weekly. Sign up for online accounts to get access to your accounts, and make it a routine to briefly check them once per week. Set free alerts to notify you with any abnormal use (e.g., if account balances drop beneath a certain amount or purchases are made above a certain limit).
• Open your mail.  Though it all may look like junk mail, opening all your mail helps you decipher the difference between junk and credit statements that were opened without your knowledge and approval. Weird phone calls that don’t make sense, or any indication that your name is being used with information that doesn’t add up can be signs something is wrong.
• Keep up your guard up at home. Sadly, a large portion of identity theft crimes are committed by people that know their victim personally. Opting into e-statements for accounts, keeping irregular credit cards, and securing information like Social Security numbers by literally locking them up can help you reduce the threat.

Want help understanding your credit report? Give us a call at 888.577.2227 or visit our website and set up a credit report review!

By Tim Fischer