This week’s question is about credit monitoring and ID theft prevention, something many Americans pay for monthly. Even if you don’t use one of these services, you’ve almost certainly seen the ads for them. Here’s the question:
My question is: I now pay $9.95 each month to [redacted], which purchases access to my credit report and credit score any time I want. In addition, I receive an email weekly, outlining any “activity” (or lack thereof) in my credit account. “Fraud Alert” is included in the $9.95 cost. I would appreciate your opinion on this service and its cost.
Thanks for the very helpful, down to earth, Money Talk News!!!
Thanks for the kind words, Jim! And for the great question. Here’s your answer:
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 of it 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.
Credit monitoring is a $3 billion business, with millions of Americans paying for “protection” against ID theft, as well as greater access to their credit histories and scores. The biggest beneficiaries? The Big Three credit reporting agencies: Equifax, Experian and TransUnion.
Four reasons you probably shouldn’t pay for credit monitoring
1. You’re not liable if someone opens credit in your name.
We’ve all read stories of how the cost of credit fraud, like shoplifting, is passed along to consumers in the form of higher prices. We’ve also read about the nightmare than ensues when your identity is stolen: Your credit is trashed, and you’re forced to spend months, even years, restoring it. (Although there’s now free help out there to do it. See “New Tools Help Identity Theft Victims Fight Back and Recover.”)
But it’s important to remember that, if someone forges your signature on a credit application, check or anywhere else, you’re generally not responsible. The law limits your liability on stolen credit cards to $50, and virtually all card issuers waive even that.
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.
So that’s reason one not to pay for these services. But an even more important reason is:
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 with your stuff. By definition, credit monitoring can only monitor transactions that have occurred, which isn’t the same thing as prevention.
From Consumer Reports:
… Affinion, Experian Consumer Direct, and LifeLock [have] been caught and punished for alleged deceptive marketing practices, such as not adequately disclosing automatic sign-up after “free” trials and promising to prevent ID theft, even though the services don’t actually do that.
If you really want to prevent crooks from making off with your identity and going on a spending spree, it 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 form and see for yourself.
Fraud alerts aren’t new. I recommended them years ago in stories like “Free ID Theft Protection.” According to the Consumer Financial Protection Bureau, they’re only supposed to be used if you “believe you are (or are about to become) a victim of fraud or identity theft.” But with all the security breaches occurring practically daily these days, doesn’t every American qualify?
So fraud alerts are one way to slow crooks down. An even more effective method is a security freeze. A freeze means nobody — including you — can open new credit under your name until your account is “thawed,” a process that can take a few days.
Unlike fraud alerts, depending on where you live, these aren’t always free or even available, and some states also allow fees to temporarily lift the freeze. Read more about credit freezes at this page of the CFPB website and learn about the rules in your state at this page of the Consumers Union website.
Another reason not to pay for protection:
3. It costs too much.
You can get a free credit report once each year from each major bureau at AnnualCreditReport.com. If you want more than that, however, or want a credit score, you could pay a bunch: up to $11 for a credit report and $20 for a FICO credit score.
Against that backdrop, using a service that charges $10 a month for unlimited looks at your credit report and score may seem like a bargain. But considering what wholesale clients pay for your credit report, it’s outrageous. According to the New York Times, while credit reporting agencies are allowed to charge you up to $11 to see your credit report, they routinely sell them to corporate clients for as little as 20 cents.
There also are services that monitor your credit at no cost. Credit Sesame, for example, offers both free credit scores and free monitoring. You don’t have to provide a credit card to enroll, but you should expect to get periodic sales pitches for products like mortgage and car loans.
And one final reason I’m not a fan of credit monitoring …4. You caused this problem, and now we’re supposed to pay you for help?
More outrageous than the fees protection services charge is the fact that we should never have been in a position to need these services in the first place.
Unless you’re the one who negligently left your credit information lying around, you shouldn’t have to worry about your credit being co-opted, 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, sell and use to grant credit, 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.”
If everyone’s credit was frozen, high-profile data breaches would never occur, because the credit card information the crooks obtain would be worthless. The credit industry doesn’t deserve to profit by charging you for protection from the mess it created and the system it profits from.
Is credit monitoring 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 article, personal finance author Lynnette Khalfani-Cox says, “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.”
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 pay $10 a month or more for “education”? I’d advise against it, and so would the Consumer Financial Protection Bureau. From that agency’s website: “Before considering these services, be aware that free and low-cost services are also available to protect consumers.” They go on to suggest using fraud alerts and credit freezes.
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I founded Money Talks News in 1991. I’ve am a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate. If you’ve got some time to kill, you can learn more about me here.
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