Credit Monitoring Basics Explained: Credit 101
Let’s start with THREE uncomfortable realities of credit monitoring basics...
- “Credit Monitoring” means different things from different services and in different contexts; there’s no agreed-upon guidelines for what constitutes “credit protection.”
- Most of what “credit monitoring” detects is after-the-fact, meaning it can’t prevent very much – only let you know when stuff has happened.
- No service, however elaborate their technology or fancy their promises, can keep you 100% safe from all forms of identity theft or credit fraud.
Now that I’ve thoroughly depressed and discouraged you, let’s put those same three realities in perspective, shall we?
- Reputable credit monitoring services don’t claim to do more than they can realistically do. Read the small print and ask questions before signing up. Then again, that should be true of anything you purchase, yes?
- I have a home security system and my car has a built-in alarm as well. Neither of those can prevent someone from breaking in or taking my stuff. There is often great value, however, in prompt notification that something seems to be happening and your immediate reaction may be appropriate.
- No service, however elaborate their technology or fancy their promises, can keep you 100% safe from all forms of identity theft or credit fraud.
What IS Credit Monitoring?
Keep in mind that different credit monitoring services answer this in slightly different ways. If we’re talking credit monitoring basics, however, the most fundamental way to think of it is a service that pays particularly close attention to your credit report(s) and your credit score(s) and lets you know if anything changes.
What’s On My Credit Report?
Credit reports vary from agency to agency and may even look different from month to month, depending on what you’ve been up to and what old information has blissfully fallen away. Basically, however, your credit report tries to do several things.
1. Clearly identify you
Your full name and any variations, Social Security number, addresses at which you’ve resided, phone numbers in your name, and however many employers you’ve had over the years.
2. Look at your history when it comes to taking out loans and paying them back
How many credit cards do you have? Department store cards? How many homes have you financed? Cars? Trucks? Boats? RVs? Student loans? Anything you’ve ever financed with anyone should show up on any version of your credit report.
Have you ever been labeled “past due”? Declared bankruptcy? Been turned over to a collection agency? Been taken to court over debt? These may be less consistent from report to report, as they rely on lenders or others to report your supposed infractions, and not everyone uses the same credit bureaus for such things. Still, expect the big stuff to turn up pretty much anywhere – then count yourself blessed if for some reason it doesn’t.
Credit reports do not attempt to capture the “why” of your past fiscal behavior. They offer little to distinguish between the noble citizen doing her best to overcome impossible odds and the village nut living recklessly and deserving whatever he gets. Nor do they know how much you currently have in the bank, what skills or long-term goals you may be pursuing, or whether or not you’re a good person.
Take them as what they are – a list of financial things intended as a general indicator of whether or not you can be trusted with money.
If you’re interested in more detail than that, check out “Credit Report Basics Explained: Credit 101.” It’s brilliant, I assure you.
What’s a "Credit Score"?
All credit scores are someone’s attempt to boil down the information on your credit report, and possibly a few other useful bits of knowledge about you, into a simple, easy-to-understand 3-digit number like 371 or 640 or 782. I confess I found it somewhat humbling the first time I realized that my years of good choices, bad breaks, hard work, and high hopes were in some ways reduced to a formula resulting in a number between 300 and 850. I had to set aside the emotions of those years, put on my big boy panties, and meet my scores.
It wasn’t as bad as I’d anticipated. And they've gotten substantially better since then. It starts with knowing.
Protect Yourself And Your Finances On Time.
Visit the Creditry Store.
There are different varieties of credit score out there, some depending on who’s computing them and some shaped by the purpose of the inquiry. Auto dealers, for example, tend to weight your history of making your monthly car payments more heavily than they do your ability to keep up with your medical bills or department store cards. Other lenders have different priorities. Still, the two biggies are the FICO and the VantageScore. These are what most people mean when they talk about credit scores.
In general, however, credit scores run somewhere between 300 – 850. A lower score makes it more difficult for you to borrow money, and usually means you’ll be paying higher interest rates on anything you are able to secure. Higher scores mean easier terms and better rates. We can debate whether or not this is “fair” or “right” or whatever, but at the moment, it is what it is.
Credit scores are often used for off-label purposes as well. Fairly or not, many people consider your credit score to be shorthand for how reliable you are as a person or employee. I’ve written about credit score basics before; you might enjoy diving in a little deeper if you’re interested in such things.
What Can I Expect From Credit Monitoring?
So, back to credit monitoring basics. Credit monitoring attempts to keep track of changes to your credit report(s) and/or credit score(s). As I said, what this looks like in practice varies wildly, but here are a few common services you can generally expect:
“Hard” Credit Inquiries
The single biggest benefit of any credit monitoring service is immediate notification of any “hard inquiries” into your credit history. As you may recall, “soft inquiries” into your credit are fairly common. You landlord may run one before deciding to rent you an apartment, or a potential employer may run one as part of evaluating you as a possible hire. These do no damage to your credit and most of the time you won’t even know they’re happening.
“Hard inquiries,” however, occur when you’re actively seeking to borrow money – to purchase a home or vehicle, to take out a personal loan, or to open up a new credit card, for example. If someone is using your information to attempt one of these things or anything similar, you’ll be notified – usually by text, email, or other alert, depending on the service and your personal preferences.
Changes to Your Credit Report
This one’s a bit harder to pin down. Your credit report and 3-digit credit score aren’t objectively solidified realities that only change at certain times of year. They’re compiled and computed on demand with great variation depending on the situation, the credit agency being used, and the purpose of the check.
You don’t really need your phone to buzz every time your credit score moves from a 688 to a 690. I mean, that’s great and all, but it’s hardly a reason to slip out of the theater and check the alert you just received. Even a slip from 688 to 686 isn’t really notification-worthy, although it’s the sort of thing you should pay attention to every so often. Some people like the reminders, even if there’s nothing required of them at the moment. It helps them think about their credit choices and such throughout the week, which is never a bad thing.
Perhaps the best way to generalize this in terms of credit monitoring basics is that it’s up to you whether this is a worthwhile element of credit monitoring. If you like it, then it is.
Changes to Public Records or Other Official Information
Anything tied to your name and Social Security number and related to your financial behavior which crosses public records usually triggers an alert. Bankruptcies, court judgements, etc. – stuff that’s unlikely to catch you off guard and which aren’t generally the sorts of things identity thieves thrive on.
Considerably more useful are alerts if your credit card company or other creditor reports you’ve submitted a change of address or other information change. Hopefully you receive some sort of “please confirm” email or text when this happens anyway, but this sort of redundancy is one of the more useful elements of credit monitoring basics.
Referrals to Collection Agencies
This isn’t about protecting your identity so much as making sure you’re aware of it any time a creditor turns you over for collection. In addition to the headaches of those phone calls, it’s a major ding on your credit rating when this happens. Instant notification might make it a little bit easier to catch errors or make things right with the lender. If nothing else, you’ll know it’s coming.
How Important Is Credit Monitoring?
That’s a tough one. On the one hand, despite a few major incidents in recent years and the popularity of “identity theft” stories in the news, the percentage of Americans directly impacted by identity theft each year sounds relatively low – around 6.64% according to one major study. By far the most common variations involve having your name and credit card information used to make fraudulent purchases. While that stinks, credit card companies are pretty good at dealing with fraud by now, and the chances that you’ll be stuck paying for someone else’s shenanigans are relatively low.
So that’s good.
On the other hand, 6.64% is still a LOT of people. Rephrase that as “about 1 in 15” and suddenly the reality of what rotten odds those really are become far more striking. And those numbers are cumulative, meaning that over the course of a decade, the odds you’ll be directly impacted are much, much higher. Here’s how a recent Forbes piece explained it:
Identity Theft is the fastest growing online crime in the United States occurring at a rate of once every 79 seconds. The Federal Trade Commission (FTC) reports that Identity Theft alone, accounted for over 42 percent of all frauds reported to federal authorities. Statistics show that the victims that suffer the most significant financial impact are those that the thief has opened new accounts in their name and that the theft had went undetected longer than 6 months.
There are known instances where an individual had been monitoring their credit report, noted suspicious activity and was able to stop an identity thief in his tracks.
The other thing to consider is the huge inconvenience that comes from being a victim of identity theft or other credit fraud. The phone calls you have to make. The letters of explanation. The delays in making important purchases. Many folks report that what they hate most is the sense of shame or embarrassment, even though they’ve done absolutely nothing wrong.
It’s impossible to 100% prevent identity theft, but it’s relatively easy and affordable to greatly improve your odds. It’s like wearing your seatbelt or locking your garage – with very limited inconvenience, you can drastically reduce your chances of facing far more severe headaches. In my mind, that’s a no-brainer in terms of credit monitoring basics.
Finally, identity theft isn’t the only thing credit monitoring is attempting to catch. It’s the biggest, and the most malicious, but credit monitoring is also about correcting errors on your reports or paying attention to activity you might not have intended to continue.
What Can I Do On My Own?
Quite a few things, actually. Sometimes what you’re getting from credit monitoring is convenience rather than services you can’t duplicate yourself. That doesn’t make it a bad idea. Like anything else, weigh what it’s worth to you. Realistically, the safest solution is probably some combination of reputable credit monitoring and personal attention.
Check Your Credit Reports
Federal law entitles you to a free credit report from each of the major three credit agencies (Experian, Equifax, and TransUnion) once per calendar year. Some experts recommend you not ask for all three at once, but stagger them so you’re receiving one report every four months or so. The reasoning is that while credit reporting varies from agency to agency, you’re more likely to catch anything major in a timely manner this way.
The only official government-approved site for requesting these reports is www.annualcreditreport.com. The site has a wealth of information on what sorts of things to look for on your credit report, how to protect your identity, etc. There are other useful resources out there, but this is a great place to start.
Many services offer free credit reporting as well, although what this means is quite different from place to place. Make sure you read the small print and ask questions. If you see anything on any of your credit reports which doesn’t look right, contact the agency immediately and dispute the report. Be prepared to back up your claim with documentation, and remember that it’s not personal – while for you it may be frightening and frustrating to see something unexpected on your report, they do this for a living and it’s just part of the gig.
I love to throw a good fit as much as anyone, but trust me – you’ll get further with less frustration if you remain calm, clear, and professional.
Pay Attention to Your Statements
We’re so inundated with mail and email notices and headaches and paperwork that it’s easy to let it all blur into background noise. It’s critical, however, that you pay at least cursory attention to those statements and bills every month, whether they arrive in an envelope or as a link. You may not want to chase down every $12 purchase you don’t remember making last month, but if you notice recurring charges you can’t account for or other activity that doesn’t feel right, stop and check it out.
Not every surprise is identity theft. I discovered just last year that my cable company had “inadvertently” charged me several times over for a sports package I’d added. The amounts were sporadic and spread out over a six-month time frame, and the first several times I was confused by the amount of my bill, I assumed I’d just forgotten how the charges were distributed or something. Eventually, however, I went back to my initial agreement and did the math and realized things were very, very wrong. It took several phone calls and a visit to a local storefront to get it resolved, but those few hours saved me nearly $500 in bogus charges.
And that’s just stuff that’s (supposedly) due to carelessness or computer error. Bad guys know we’re busy and easily distracted. Scan your bills and statements every month. It gets easier the more often you do it, and it’s worth the extra few minutes. I promise.
If things are far more serious than that, you might consider a full credit freeze.
What Is A “Credit Freeze”?
A “credit freeze” essentially “locks down” your credit report and any efforts at activity which would impact it. It does not hurt your credit score and it doesn’t cost anything to do. Despite this, it’s one of the least-known elements of credit monitoring basics.
To freeze your credit, contact each of the three major credit agencies – Equifax, Experian, and TransUnion – and ask them to “freeze” you. You’ll need to be able to establish your identity for them to do this, so be prepared to provide a reasonable amount of personal information.
They’ll provide you with a PIN like the one you use when using an ATM or turning off your home alarm system. You’ll need this number to “unfreeze” your information. In the meantime, creditors can still get your credit report, but it will require additional steps and verification that you’re attempting to do business with them. A “freeze” makes it considerably more difficult for identity thieves to use your information to take out new credit cards or otherwise establish new lines of credit using your good name.
Depending on your circumstances, you may wish to forego the freeze and instead institute a fraud alert.
What Is A “Fraud Alert”?
A fraud alert puts a note on your account that something may be fishy. If you’ve recently lost your wallet, had a purse stolen, or otherwise have reason to suspect your financial information might be abused, a fraud alert is probably a good start while you sort out the rest. This makes it difficult for anyone to use your cards or extend credit in your name without several extra layers of verification.
What Can Credit Monitoring NOT Fix?
It’s not a miracle cure. Most of what credit monitoring does is let you know when something looks fishy – hopefully in time for you to prevent serious damage. It’s not able to prevent those things in the first place, however.
The bigger issue, though, in terms of credit monitoring basics, is that all the monitoring in the world can’t save us from ourselves, or from our own carelessness when we should know better.
woman who gave a waitress a $5,000 tip wasn’t being as generous as it seemed.
The massive tip was apparently part of a woman’s plan to get back at her boyfriend, who she was seemingly very angry with. She reportedly used her boyfriend’s credit card without his knowledge.
As it turns out, the boyfriend had locked her out of his card, then let her back in after he thought she wasn’t mad at him anymore. In other words, HE KNEW BETTER.
{A recent} scam has been sending Venmo users text messages, working under the guise of the same colors and fonts of the mobile payment service’s app, officials have warned. People have received texts saying that their accounts are about to be charged, but if they want to cancel the withdrawal, they must log into their accounts...
According to the police department, the text allows users to sign in using any phone number and password but asks for personal financial information, including a bank card, to verify the identity of the user.
Log in using ANY phone number and password, then give up personal financial info to verify your identity? I guarantee that most of the folks who fell for this KNEW BETTER. But we get busy. We get careless. We don’t want to believe it could happen to us.
My favorite is a man in Collier County, Florida, who – with his girlfriend’s help – burned through several thousand dollars in purchases with stolen credit cards. Here’s the essential line from the local report:
{William Collins} was identified in several other investigations, all similar, in which credit cards would go missing from people's cars. In at least one case, the victim's credit card was stolen from her unlocked vehicle.
Please understand, I’m in no way blaming the victim – but leaving your purse in an unlocked car? This woman KNEW BETTER.
In case you’re worried, the police caught Collins:
Collins and his girlfriend, identified as 26-year-old Alexandra Dean, eventually pulled up {to their residence} in an SUV but ignored all deputies and went inside.
Deputies then surrounded his home, and Dean came outside to tell them Collins had left the house, despite the home being monitored. Deputies eventually arrested Collins after finding him hiding inside a bedroom closet.
That’s right. He walked into the house in full sight of the authorities, then sent his girlfriend out to tell them he wasn’t there. Turns out his master ploy didn’t work. THE POLICE KNEW BETTER.
There’s no Nigerian Prince who needs your help to get his royal fortune from inside an African prison. The IRS doesn’t leave voice mails about tax fraud wanting you to call back with private tax information. Your boss isn’t texting you from an unfamiliar number to buy gift cards and mail them to her niece out of state – quickly, it’s an emergency!
That’s what I mean when I say that part of credit monitoring basics is realizing that monitoring can’t save us from ourselves, or from our own carelessness when we should know better. There are things we can’t prevent. We just have to deal with them as best we can if and when they occur. But we can improve our odds considerably, and we can avoid making things worse for ourselves unnecessarily. Do the obvious things first. Sure, some bad guys are masterminds exploiting tiny cracks in the system. Most of them, however, are just waiting for us to do something unnecessarily foolish.
I'm not suggesting you live in fear; I'm suggesting you lock your car and don't give your credit card to your crazy, ticked off girlfriend. Credit monitoring basics, kids: use your own common sense.
Conclusion
Like with anything we talk about here, in the end you have to choose what you believe is best for you and yours. That’s all any of us can do, and there’s no shame in not always being sure how to proceed as long as you’re trying to stay informed and making the best decisions you can.
As you’re making those decisions, we’d like to do more than help you manage your debt, organize your taxes, or monitor your credit. We’d like to do more than just help connect you with online lenders for flexible terms on your next personal loan. Below is a form you can fill out if you want us to start connecting you with lenders right away:
We envision a relationship in which we give you the tools to unify all of your financial choices and weigh all of your financial decisions in one place. It’s still you making the choices – that’s absolutely essential if this is going to work – but we’d like to reduce the chaos, the separation between the different parts of your financial world that in the end all come down to you and your money, you and your priorities, you and your future.
It’s not magical or anything, but it is something special. We’re not supposed to brag, but honestly? It’s pretty cool.
If you’d like to learn more, or if you have specific questions, let us know. We’re always here.