Importance Of Monitoring Your Credit

Is bad credit causing problems in your life, such as difficulty buying a home or car? Use credit monitoring tools to track and improve your credit.

Good credit is important. Americans routinely deal with issues relating to credit. For example, credit comes into play when purchasing or renting homes. It can also affect employment status, in some cases. Due to the ways in which bad credit can hinder life, most U.S. adults want to improve their credit scores. However, many do not understand the importance of knowing their exact credit scores or statuses at any given time. 

If you think you have a rough idea of what your credit status is, you may think that knowledge is enough. When you pay your debts on time, it is likely you have good credit. Otherwise, your credit is almost certainly bad. However, your credit report status is not that simple. Several processes and issues can affect your actual credit score, which is subject to frequent potential changes. Credit monitoring is also vital because it allows you to get a clear sense of your full risk assessment status, not just your credit score. Here is how credit monitoring works, why it is so important, and where you can monitor your credit.

How Do Credit Scores and Credit Reports Work?

A credit score is a formula-driven method of assigning a credit rank to an individual. That individual is called a debtor. The rank indicates the debtor's risk level to potential creditors. For example, a bank is more likely to give a loan to a loan applicant with a good credit score than one with a low to mid-range credit score. A high credit score is indicative of a good credit history. It indicates an individual is responsible and pays debts in a timely manner. Credit scores are established by various companies based on similar criteria. Those companies use numeric scales to assign scores. Typically, credit scores range from approximately 300 to 850.

A credit score is often associated with a credit report. However, it is only one aspect of a credit report. The report is a full credit risk assessment. Therefore, it also includes other vital information companies use to decide whether individuals are worth loaning money to or hiring. Here are some examples of information commonly listed on a credit report:

  • Personal Identifying Information of the Debtor

  • The Names of Companies Requesting to View the Credit Report

  • Certain Public Records About the Debtor, Such as Bankruptcy Records

  • Credit Card Account Information

  • Student and Personal Loan Information

  • Mortgage Information

  • Information About Other Lines of Credit or Debts Held by the Debtor

What is Credit Monitoring?

The terms “credit check” and “credit monitoring” are often thought of as similar. However, there is a difference. A credit check is typically a one-time or occasional event. It is usually done by some type of service provider or lender at the start of a transaction, such as a loan or insurance application. Although, debtors can also opt to check their own credit statuses. Examples of types of companies that frequently conduct credit checks on debtors include:

  • Potential Employers

  • Banks

  • Credit Card Companies

  • Telecommunications Companies

  • Insurance Companies

  • Utility Companies

Credit monitoring is the process of a debtor staying informed about his or her credit report status on a regular basis. Free credit monitoring tools exist to do that. There are also paid credit monitoring services available with additional features. One such feature of some credit monitoring tools is offering alerts when accounts are accessed from locations flagged as potentially fraudulent. For example, if a debtor lives in the Eastern United States and has an account accessed from the Western United States, a credit monitoring company can alert the debtor immediately.

What Are Some Top Credit Monitoring Companies, Apps, and Tools?

In the United States, there are three primary credit reporting agencies. They are TransUnion, Equifax, and Experian. Users of any of those websites or apps can check their credit reports for free once per year. Those companies also provide useful services like fraud reports and victim assistance for victims of identity theft. Experian users can also take advantage of the Experian Marketplace to get auto insurance, credit card, and loan rate information. Here are some other top free and paid credit monitoring companies:

  • Credit Karma is a free credit monitoring service and multi-purpose financial advisory company. Its website includes credit card, loan, and home purchasing application tools. Credit Karma also offers personalized insights into ways to improve credit based on credit report data.

  • CreditWise from Capital One is also a free service. It automatically flags potentially fraudulent activity and sends email alerts to users. Users can also take advantage of its simulator tool to estimate how financial decisions may impact credit scores before finalizing such decisions.

  • IdentityForce is a paid identity theft protection tool. It provides credit monitoring and many other services relating to financial security. For example, users can receive identity theft insurance coverage through IdentityForce. Memberships range in price from approximately $10 to $20 per month based on selected service levels.

  • PrivacyGuard provides daily monitoring of the credit scores recorded at all three major reporting agencies. Credit reports are provided monthly. Identity fraud resolution is also available through PrivacyGuard. Credit protection plans start at $19.99 per month.

  • FICO is known for producing the most accurate and respected credit scores. The company provides full credit monitoring services, including identity theft monitoring. Membership prices range from $19.95 to $39.95 monthly for individual services. Business services are also available.

What Are the Long-Term Benefits of Monitoring Your Credit?

You may think the biggest long-term benefit of monitoring your credit is learning how your score is calculated so you can find ways to improve it. That is certainly one benefit, especially since it can help you estimate your eligibility for loans or lines of credit. Another major benefit of credit monitoring is identity theft protection. Keeping informed about your credit status can help you stop thieves quickly. Credit monitoring can also allow you to identify errors on your credit report. An accurate, protected credit report allows you to improve your credit score more efficiently. You do not have to worry about unnecessary credit setbacks when you use monitoring tools and services.