This week’s question comes one of the many Americans who pay to have their credit protected by a credit monitoring service.
I subscribe to two credit monitoring services with at least two different plans offered by each company (which appear to be comparable). My [company] membership is $23.30 a month (paid annually), while my [company] membership runs me $26.95 a month. My problem? I can’t decide which is the most cost-effective provider of credit monitoring and identity theft protection?!
Here’s your answer, Heather!
About 30 years ago, I needed a divorce attorney. I had a good friend who was a brilliant corporate lawyer, so I asked him, “Who’s the best divorce lawyer in town?” His response: “That’s like asking who’s going to win a one-legged race.”
He didn’t have much respect for divorce lawyers.
I feel like answering Heather’s question the same way, because I have little respect for companies charging big bucks for credit monitoring. Here’s why.
Converting fear into fees
They say sex sells, and I’m sure they’re right. But I doubt it outsells fear. From burglar alarms to bomb shelters, Americans shell out billions annually to protect against all manner of evil: some real, much greatly exaggerated. But wherever fear can be churned up, you can bet there’s someone not far behind making a buck.
Such is the case with credit monitoring.
These services are more sizzle than steak for at least four reasons.
1. You’re not liable if someone opens credit in your name
If someone forges your signature on a credit application, check or anywhere else, you’re generally not responsible for the results. As with anyone stealing anything, the thief is liable. And if the thief isn’t caught or can’t make restitution, it’s a problem for the institution that accepted the fraudulent charge, not you.
Of course, we’ve all read stories of how credit fraud is passed along to consumers in the form of higher prices. We’ve also read about the nightmare that ensues when your identity is stolen: Your credit is trashed, and you’re forced to spend months — even years — restoring it.
So why isn’t paying for credit monitoring money well-spent?
2. Credit monitoring doesn’t prevent ID theft
Monitoring your credit is marketed as if it’s a burglar alarm that keeps bad guys out. But what it more closely resembles is an alarm that’s tripped as the bad guys are leaving. By definition, credit monitoring can only monitor transactions that have already occurred. What you want is to prevent them from happening in the first place.
As it happens, dissuading crooks from making off with your identity and going on a spending spree isn’t hard to do, and it doesn’t cost a dime. Just put a fraud alert on your account. According to Experian:
Fraud alert messages notify potential credit grantors to verify your identification before extending credit in your name in case someone is using your information without your consent.
Doesn’t that seem like a good idea? It costs nothing, and there aren’t a lot of hoops to jump through. Take a look at the Equifax form, and see for yourself.
So fraud alerts are one way to slow crooks down. An even more effective method is a credit freeze. A freeze means nobody — including you — can open new credit until your account is “thawed,” a process that can take a few days.
Unlike fraud alerts, credit freezes aren’t always free or even available, depending on where you live, and some states also allow fees to be charged to temporarily lift the freeze. Read more about credit freezes at this page of FTC.gov and learn about the rules in your state at this page of the Consumers Union website.
3. Who’s monitoring the monitors?
LifeLock is a monitoring service that’s probably the most heavily advertised. But here’s something they don’t advertise: In 2015, they settled with the Federal Trade Commission in an action that accused them of misleading consumers and not adequately protecting their private information. From the FTC press release:
LifeLock will pay $100 million to settle Federal Trade Commission contempt charges that it violated the terms of a 2010 federal court order that requires the company to secure consumers’ personal information and prohibits the company from deceptive advertising.
In 2010 action referred to above, the FTC collected $12 million from a settlement with LifeLock. From the 2010 press release:
“While LifeLock promised consumers complete protection against all types of identity theft, in truth, the protection it actually provided left enough holes that you could drive a truck through it,” said FTC Chairman Jon Leibowitz.
LifeLock isn’t the only company that’s found itself in hot water over credit monitoring. A few years ago, the Consumer Financial Protection Bureau required Capital One Bank to refund about $140 million to 2 million customers and pay an additional $25 million penalty for misleading consumers into paying for add-on credit card products like payment protection and credit monitoring.
4. It costs too much
Some monitoring services allow you to get your credit report and score at any time for free. Against a backdrop of $11 for a credit report or $20 for a credit score, paying $20 a month for unlimited looks may seem like a bargain. But you can get a free credit report once a year from AnnualCreditReport.com, and these days you can easily get free access to your credit score. For details, see “Ask Stacy: Where Can I Get a Free Credit Score?”
One of the things about monitoring services that really kills me is that we shouldn’t need these services in the first place. Unless you’re the one who negligently leaves your credit information lying around, you shouldn’t have to worry about your credit history being stolen and you shouldn’t have to jump through hoops if it happens. The banking and credit reporting industries make billions annually from American consumers. If they can’t be bothered to create a system that protects the information they collect and sell, they should solve — and pay for — the problems that result.
But instead of crafting a safer system, they craft clever commercials to sell you “protection.”
Is it all bad?
There are those who disagree with me and tout credit monitoring and protection as a smart thing to do. For example, in this 2010 article, personal finance author Lynnette Khalfani-Cox said:
The single biggest reason to use credit monitoring is that you’ll receive an incredible amount of credit education simply by staying on top of your credit. The mere act of constantly reviewing your credit files and being aware of changes to your credit profile promotes enhanced financial literacy and better credit awareness.
Fine. Monitoring your credit is a good educational experience. And if you’re going to be applying for a mortgage or other big loan, the three free reports you’re entitled to yearly from AnnualCreditReport.com may not be enough. But paying $20 a month — or more than $50 in Heather’s case — for “education”? I’ve managed to keep my credit score nearly perfect without it. So can Heather, and so can you.
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The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.
I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.
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