Credit makes life easier both on a day-to-day and long-term basis. For example, credit cards help pay for clothes and dinners out, while loans pave the way for large purchases like a car or house.
No matter your age or situation in life, it’s important to understand the reasons to monitor your credit (and how to go about doing it).
Why Do Credit Monitoring?
Credit matters in ways you’ve surely considered, as well as in ways you might not have. Most people know that unless you have a substantial chunk in savings, you need a loan to get a car, and your credit score affects the loan’s interest rate. But did you know that prospective employers often check your credit history to see how financially responsible you are? Or that utility companies examine your credit as well?
Couple that with the prevalence of credit card fraud and identity theft, and there are a lot of reasons to monitor your credit:
- You’ll know what is going on and see much of what prospective employers and lenders are seeing (such as your payment history, how much you owe, recent credit and types of credit).
- You’ll be able to identify errors and/or potential problem areas and move to fix them.
- You’ll be alerted to possible credit card fraud or identity theft (new, unexplained accounts opened or balance surges, for instance)
- You’ll be able to monitor credit fluctuations in advance of a large purchase.
- You’ll have better preparation for housing, transportation and employment.
It’s important to get an idea of what to expect when you’re planning a purchase such as a house. Credit monitoring helps you stay on top of your finances as you prepare for new stages in your life. In general, you can do self-monitoring, pay a company to do it or some combination of both.
Credit self-monitoring often requires little upfront monetary investment and is a good starting point if you’re unsure about the need to monitor your credit. Here’s how to do it.
- Look at your bank accounts, credit card accounts and other financial accounts on a weekly to monthly basis. When possible, set up alerts for online transactions or transactions that cost more than a specific amount. These alerts ensure you’re aware of any unauthorized purchases.
- Get a free credit report every four months through annualcreditreport.com. Rotate the free reports among Experian, TransUnion and Equifax. Assess each report for unusual activities such as a credit card account you have no idea about, credit denials and unfamiliar credit card charges.
- Take preventative measures such as shredding financial documents and conducting online financial business through secure channels.
- Ask your prospective mortgage lender, landlord or credit card company for your credit score when one of them makes a credit inquiry. Your score will fall somewhere between 300 and 850, with 850 being the best. Experian, TransUnion and Equifax use slightly different metrics for your credit score, but your score normally should not vary dramatically. As you get and track your credit score, keep an eye out for huge increases or drops.
- Take advantage of a one-stop service such as Mint that puts all of your transactions in one place for easier supervision.
Credit Monitoring Services
You may prefer a credit monitoring service instead of self-monitoring, especially if you want the absolute peace of mind that comes with complete monitoring and are okay paying for it. Experian, TransUnion and Equifax each offer credit monitoring services at varying package levels. So do banks and identity-theft services.
Here’s what you should factor in as you compare the various possibilities.
- The cost: Some places ask you to pay a monthly fee that can really add up. If a credit score is all you really want, order it directly from Fair Isaac.
- Extraneous scores: You only need the FICO (Fair Isaac) score. Forget about any other score.
- Free monitoring: Approach free-monitoring offers with caution. Retailer offers tend to come with pretty significant drawbacks such as requiring that you waive the right to sue them. However, other free services might be okay—Lifehacker recommends Credit Sesame and Credit Karma. You’ll have to pay extra for optional features such as real-time notifications, though.
- Free trials: Free trials are useful so you can get an idea of how user-friendly and vigilant a credit monitoring service is. They come in varying lengths such as 14 days or one month. Here is a handy chart comparing common credit monitoring services; you can see which ones offer free trials.
- Which bureaus: Most, but not all, credit monitoring services keep an eye on the three bureaus.
Whether you self-monitor your credit or pay for it, it’s essential to correct any mistakes as soon as possible. You will need to contact the bureau that issued the erroneous report and follow its procedures.
Self-monitoring your credit has never been easier when you set up one-stop apps and alerts, but whatever form of monitoring you use, catching an error early could make a huge difference in your life and stress levels.
Filed Under: Mortgage Rates
Tagged with: credit history, credit monitoring, credit report, credit score, fico credit score, how to monitor credit, identity theft, improving credit, maintaining credit, why monitor credit