Should I Pay for Identity Theft Protection, Credit Monitoring?
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. Here's the query:
"My question is: I now pay $9.95 each month to Tru-Credit, 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 it's cost. Thanks for the very helpful, down to earth, Money Talk News!!! – Jim"
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 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 and greater access to their credit histories and scores. The biggest beneficiaries? The Big Three credit reporting agencies: Equifax, Experian and TransUnion. The company Jim uses, Tru-Credit, is owned by TransUnion. I'd like to offer a few reasons why you probably shouldn't pay for credit monitoring.
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 charges. 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.
Of course, we've all read stories of how 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. So why isn't credit monitoring money well spent? Because of the following.
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 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.
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."
I recommended fraud alerts in 2009: see 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 weekly 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 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.
3. It Costs Too Much
Against a backdrop of $11 for a credit report or $20 for a credit score, paying $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 routinely sell your credit report to corporate clients for as little as 20 cents.
There are also services that monitor your credit at no cost. Credit Karma and Credit Sesame, for example, both offer free credit monitoring. They also offer free credit scores, although not the most widely used score, the FICO score. You don't have to provide a credit card to enroll with either of these sites. Do, however, expect to get periodic sales pitches for products like mortgage and car loans.
4. You Put Us in Danger -- and Now We'll Pay You to Protect Us?
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 leaves 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 like those at Target and Home Depot would never have occurred, because the credit card information the crooks obtained would have been worthless. In short, the credit industry doesn't deserve to profit by charging you for protection from the mess it created.
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: "Before considering these services, be aware that free and low-cost services are also available to protect consumers."
Agree or disagree? Tell me what you think below or on our Facebook page. Got a question you'd like answered? You can ask a question simply by hitting "reply" to our email newsletter. If you're not subscribed, fix that right now by clicking here. 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 far more questions than I have time to answer.
Stacy Johnson founded Money Talks News in 1991. He earned a CPA (currently inactive) and has also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate. Got some time to kill? You can learn more about me here. Like this article? Sign up for our newsletter and we'll send you a regular digest of our newest stories, full of money saving tips and advice, free! We'll also email you a PDF of Stacy Johnson's "205 Ways to Save Money" as soon as you've subscribed. It's full of great tips that'll help you save a ton of extra cash.