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What Is Credit Monitoring and How Does It Work?

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With so many aspects of our life going digital and more of our personal information being stored online, chances are you or someone you know has probably been impacted by a data breach. 

Knowing that your personal data have been leaked and that the information may be up for grabs by identity thieves is unsettling. After all, nobody likes to think about the possibility of someone using their information to open up fraudulent accounts. (Sometimes, we may not even be aware of unauthorized activities until the financial or credit damage is done.) 

This is where credit monitoring can help. When you sign up for credit monitoring services, your provider watches over your credit reports, alerting you to any changes in your accounts – which could help you spot signs of identity theft in a timely fashion. 

Before we take a closer look at how credit monitoring works, here’s one important thing to understand: Credit monitoring does not prevent identity theft. Rather, think of it as an early warning system that lets you know if someone is misusing your personal information. And the sooner you know, the sooner you can do something about it. 

How credit monitoring works 

When someone steals your identity, they’re essentially pretending to be you and using your information to commit fraud. And they may be able to do so undetected for a while – that is, until you notice something’s wrong with your credit.  

But if you have credit monitoring, your credit monitor can send you an alert if they notice there’s a change or something unusual in your credit reports. See something, say something – that’s basically the gist of credit monitoring. 

What kind of changes does a credit monitoring service look out for? Things like new credit cards being opened, unusual balance increases (like changes in spending) and late payments. 

You may also be alerted when there’s a change of address or a new credit inquiry. 

Keep in mind that not every alert necessarily means something fishy (or should we say…phishy) is going on. If you recognize the changes or activities in the report, that’s OK. But if you don’t recognize them, it’s a red flag that someone might be using your identity. And you’ll have to take steps to help resolve the issue (we’ll go over how to do that a little later).

What credit monitoring can’t do 

We said earlier that credit monitoring cannot prevent identity theft or credit fraud. That’s because credit monitoring can’t stop someone from misusing your identity once it’s been stolen. It simply notifies you of changes in your credit reports.

And while credit monitoring can help you detect signs of identity theft, it can’t help you recover your identity. It’s up to you to take action if fraud has been confirmed. For example, you could freeze your credit, call your financial institutions and file a dispute with the appropriate credit bureaus.

Credit monitoring may not be able to catch suspicious activities going on outside of your credit reports. 

Because credit monitoring focuses on your credit activities (credit cards, loans, bill payments, etc.), it may not be able to catch suspicious activities going on outside of your credit reports.

For example, basic credit monitoring services generally don’t keep tabs on what’s going on in your bank accounts – like if someone is making unauthorized withdrawals from your checking account. 

Also, they may not be able to alert you if someone is using your Social Security number to file a fake return or steal your tax refund.

Is credit monitoring free? Some things to consider when choosing a service provider

Some banks and credit card companies offer free credit monitoring services to their customers as part of their membership benefits. And sometimes you may be eligible for free credit monitoring if your personal data have been compromised in a data breach. 

You can also opt for a paid service if you’re looking for particular monitoring features. For a monthly or annual fee, some companies can offer a suite of services on top of basic credit monitoring that may not be available from free service providers. 

For example, they may be able to run more comprehensive scans that go beyond just tracking your credit reports. Some paid services may even offer personalized recommendations, insurance coverage or identity recovery assistance as part of their overall credit monitoring package.

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This is important: Just because you’re paying more for a service doesn’t necessarily mean that you’re getting better service (some of us know this all too well). Whether you’re looking for free or paid credit monitoring, it’s important to understand what’s covered and not covered in the service agreement. For instance, does the credit monitoring cover all three credit bureaus or just one specific bureau? What kind of alerts will you be getting? And if you’re paying for extra features, are they worth the extra costs? (Some paid services can cost hundreds of dollars each year!) 

Bottom line: Credit monitoring services – free or paid – can vary widely. It’s a good idea to do some comparison shopping before signing up.

You can do some basic credit monitoring yourself

Whether or not you choose to sign up for credit monitoring services, there are some basics steps you could take to protect your personal information and monitor your own credit. While you may not get the benefit of receiving real-time alerts, doing some credit monitoring on your own can help you stay vigilant. 

Some moves to consider:

  • Creating strong account passwords and updating them regularly. 
  • Setting up credit card alerts so that you can be notified of certain activities, like transactions exceeding a certain amount, a card being declined, international purchases, etc. 
  • Checking in on your bank accounts regularly to see if there are any unauthorized activities.
  • Reviewing your account statements when you get them. And if your credit card company provides free credit scores, keep an eye on that as well.
  • Requesting and reviewing your free credit reports from the national credit bureaus (Equifax, Experian and TransUnion). Remember, you’re entitled to a free report from each of these bureaus once every 12 months. 
  • Freezing your credit if you’re worried about identity theft to prevent others (both lenders and thieves) from accessing your credit files without your authorization.

How to dispute credit report errors

If your credit monitor alerts you to something in your reports that you don’t recognize (whether the error is due to an honest mistake or fraud), you can contact the appropriate credit bureau to dispute it.

You may also want to contact the information provider (the company or organization that originally reported the disputed information to the credit bureaus) to let them know that you’re disputing an item in your credit report. 

You can typically file a dispute online, which pokes the credit bureau to investigate the issue. 

“Dispute” sounds a little intense. But don’t worry, it’s more about submitting paperwork than shaking fists.

You can typically file a dispute online, which pokes the credit bureau to investigate the issue. 

In addition to submitting a dispute, you may also have to provide certain documentation depending on what specific information you want corrected. For instance, if you’re disputing a credit card account you didn’t open, you may have to provide proof that it was the result of someone stealing your identity. Once the dispute investigation is completed, the credit bureau will notify you of the results. 

For more information on disputing errors, visit the Federal Trade Commission website here.

Also, check out our Identity Theft information page if you want to learn more ways to protect yourself and what you could do if your identity has been stolen.

This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.