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How Credit Monitoring Works

Criticism of Credit Monitoring

The first gripe that many consumer advocates have with credit monitoring services is the misleading way they've been sold to the public. The most notable culprit is Experian, the credit reporting agency behind the controversial website

Back in 2003, Congress passed the Fair Credit Reporting Act requiring each of the "Big Three" credit reporting agencies to provide consumers with a free copy of their credit report once a year [source: FTC]. The problem was that Experian already owned the URL and refused to sell it to the government.

The government ended up creating for public access to the legally mandated free credit reports, but Experian continued to siphon away consumers with its misleading website. It turns out that the "free" credit report it offered was only free for seven days, after which consumers were charged $14.95 a month for a credit monitoring service if they failed to cancel. Experian ended up paying the Federal Trade Commission $1.25 million to settle charges of false advertising [source: Lieber].

Besides their misleading sales tactics, credit monitoring companies are criticized for marketing their services as effective protections against identity theft. Credit monitoring alerts can only give you a clue that identity theft has already taken place — like the creation of an unauthorized new credit account or a change of address — not protect you against the crime in the first place [source: Weston].

A larger criticism of credit monitoring services is that daily monitoring of your credit status is simply unnecessary. Consumers don't stand to gain financially from knowing that their credit score rose or fell two points from one day to the next. Such short-term fluctuations are impossible to evaluate given that it's unclear what formula the credit monitoring company is using to calculate the score [source: Weston]. Also, a constant stream of alerts may make it more likely that you skip over a warning that your account actually has been breached.

Then there's the issue of single-report credit monitoring versus three-report monitoring. In the case of Target and its massive identity theft case, it offered victims free access to credit monitoring from Experian, but not TransUnion or Equifax. Not all creditors report data to all three agencies, so monitoring only one report is less effective [source: Blyskal].

Perhaps the most glaring criticism of credit monitoring services is that consumers can protect themselves just as well — perhaps better — for free. We'll explain how on the next page.