Identity theft has become such a problem that even the US government sees the need for a way to prevent it. In an effort to take away some of the threat of identity theft, the government passed the Fair and Accurate Credit Transactions Act (FACTA) in 2004. In part, FACTA entitles consumers to one free credit report from each credit reporting agency each year.
The idea behind that free credit report is to allow you to see what is being reported on your credit report and by whom. It helps you to know that your credit reports are accurate, which in turn allows you to dispute anything that might be incorrect. But there’s much more reason to monitor your credit reports than just for the sake of accuracy.
Why Monitor Your Credit Reports
Monitoring your credit report simply for accuracy is a good goal. Various studies have shown that as many as 70 to 80 percent of consumer credit reports are inaccurate. That alone should make you want to know what your credit report says.
Your credit report controls your life. Really. Sure, creditors check your report before loaning you money, granting a mortgage, or sending you a credit card. But did you know that your insurance company probably checks your credit report before determining how much you’ll pay for car and home insurance each year? And your employer may also check your credit report before giving you a job or a promotion.
The most important reason to monitor your credit, however, is to be sure that you are being portrayed as the person that you are. Your credit report shows who is checking your credit, what credit you have been given, and what your payment history is like. Because identity thieves usually steal your identity to gain access to your financial personality, your credit report is where you’ll find the first indicators that your identity has been compromised.
How Can Credit Monitoring Services Help?
Monitoring your credit can be time-consuming. The FACTA act would lead you to believe that you should check your credit reports from each of the credit reporting agencies about once a year. And it’s true that checking it once a year is better than never checking it all. But once a year is not enough.
Financial experts would have you believe that checking your credit report a couple of times each year is enough. If you’re not at risk for identity theft, twice a year will suffice. But if you’re actively using credit, and if anyone other than yourself has access to your Social Security Number, then you really should be monitoring your credit report at least every quarter.
Credit reports are updated about once a quarter by credit reporting agencies. It can happen more frequently than that if there’s a lot of activity on your report (for example, if you’re applying for a mortgage or if you finance a vehicle and open a new line of credit within a few weeks of each other). On average, however, you can expect there to be an update to your credit report at least one time per quarter. And for that reason, you should be monitoring your credit report on the same interval.
Monitoring your report means requesting the report, and then reviewing each of the entries on the report for accuracy. The entries can be a little confusing and hard to read if you don’t know what you’re looking at. And it’s easy to forget to request copies of your report from each agency if your life is busy, like so many people’s are.
That’s where credit monitoring services come in. In general, most credit monitoring services offer to monitor your credit reports on a regular basis, and report any changes to you. The problem is, that ‘regular basis’ varies by monitoring service. Some offer actual credit report reviews monthly or quarterly while others might only review your report every four to six months, or even once a year.
Credit Monitoring: The Good and the Bad
There are two schools of thought when it comes to credit monitoring services: those who believe that you absolutely should use one, and those who believe that credit monitoring services are an expensive waste to accomplish something you can do on your own.
It’s true, you can monitor your own credit report for a fraction of what most services will cost you. On average, a credit monitoring service will cost about $10 per month, per report. So, if you’re monitoring all three agencies—and with many monitoring services, you have to request that all three be monitored—it’s going to cost you about $36 a month or $432 a year.
What you’ll receive for that $432 per year varies according to the service that you choose, but in general you can expect that you’ll be alerted if someone applies for new credit or if something suspicious turns up on your credit report. Most monitoring services also come with identity theft insurance that will help you recuperate the costs necessary to repair any damages that might result from identity theft.
On the other hand, you can monitor your own credit report for about $8 per report, per agency for a total of around $288 per year, if you monitor it on a monthly basis. So, the question becomes, how much is it worth to you to monitor your own report? The answer varies, but many people find that the expense of a monitoring service is much easier to manage than monitoring their credit reports on their own.