What is credit monitoring, and how does it work?

Your credit is the key to financial opportunity. A credit score, credit history, and beyond will make it easier (and more affordable) to buy a house, lease a car, take out a personal loan or even get a job or an apartment, while poor credit will do the opposite.

As such, monitoring your credit score and overall credit report regularly is key. This can allow you to spot errors or instances of identity fraud before they can hurt your score or your finances.

Though you can track your credit yourself (all three credit bureaus offer free weekly reports through April 2021), you can also utilize a credit monitoring service, which does the work for you.

“Credit monitoring provides individuals with updated information about their credit reports,” said Gerri Detweiler, education director at business finance agency Nav.com. “It can include alerts to changes in credit reports or scores as well as updated credit reports.”

Here's everything you need to know about the process — and how you can work toward improving credit.

What is credit monitoring, and how does it work?

Credit monitoring allows you to stay on top of your score — and overall credit report — without any manual work on your part.

"Credit monitoring tools track a consumer’s credit report and their credit score,” said Howard Dvorkin, chairman at Debt.com. “Repeat victims of identity theft or someone looking to finance a big purchase that hinges on their credit score might consider using a credit monitoring service.”

These alerts can be critical to catching identity thieves early — not to mention halting the effects it can have on your score.

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“Just two weeks ago, I found out I was a victim of identity theft due to a credit monitoring alert,” Detweiler said. “The crook tried to open a credit card and a loan in my name. It also appears they applied for unemployment in my name. Fortunately, I caught it right away before more damage could be done.”

What is a credit score and why is it important?

Your credit — specifically your credit score — is hugely important as a consumer. As John Corraro, a financial planner at Barnum Financial Group, put it, “If your entire financial life could be boiled down to one number, it would be your score. It's a three-digit figure that represents your history of borrowing and paying back money. The higher the score, the more trustworthy you're considered to be by creditors.”

A low score, on the other hand, can be costly.

“A poor credit score could mean paying sky-high interest rates on credit cards and loans — if you're approved at all,” Corraro said.

A lot of factors influence your credit score, including your payment history, your balances, how long you’ve had your accounts open, the types of accounts you have, and the number of credit inquiries in recent months. Because many of these factors are always changing, your credit score is often in flux as well.

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Credit monitoring vs. identity theft protection

Credit monitoring services can keep you apprised of changes to your credit report, while identity theft protection — or identity theft insurance — can help restore your identity should someone try to steal it or use it fraudulently.

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According to Detweiler, many credit monitoring companies offer both services — at least for a fee.

“Paid credit monitoring usually costs in the range of $15 to $30 a month depending on benefits,” she said. “It often includes other benefits such as identity theft restoration assistance and reimbursement for certain costs related to identity theft. It may be worth it if you don’t have those benefits through other sources — such as your homeowner’s insurance policy, or if you want the peace of mind knowing that someone will be there to assist you if your identity is stolen.”

HOW DO REWARDS CREDIT CARDS WORK?

How do I protect my credit?

A good credit monitoring service is one way to safeguard your credit. In addition to this, you can protect your credit by paying your bills on time, alerting the credit bureau of any errors your find on your report, and keeping your balances to below 30% of your total credit line. Avoiding unnecessary credit inquiries (such as applying for a loan you’re not really serious about) can help, too.

Another option is to freeze your credit.

“Credit monitoring catches problems after they occur,” said John Madison, CPA and financial counselor at Dayspring Financial Ministry in Ashland, VA. “A credit freeze prevents the problems from happening by keeping any unauthorized accounts from being opened. If you need to open an account, simply temporarily un-freeze your account, then re-freeze it after the credit application is processed.”

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