Do Credit Monitoring and Identity Theft Protection Services Work?

Identity theft is a growing problem, with effects ranging from damaged credit ratings to massive debt. Consumers are increasingly concerned about the risk of identity theft, providing ample opportunities for companies that offer credit monitoring services and identity theft protection. The theory behind these types of services is good, but do they really protect consumers from identity theft?

What is Identity Theft?

Identity theft occurs when someone gets access to your personal information – such as social security number, address, and credit card numbers – and uses that information fraudulently. Identity thieves might use someone else's identity (and credit rating) to mask their own identity, to purchase items on a stolen credit card, or to secure a new credit card or other loan.

Identity theft often goes undiscovered for months or even years, until recurring unfamiliar charges on a credit card bill – or an unpaid credit card bringing down your credit rating – become apparent. The more time that passes, the more difficult it becomes to track identity theft and restore your credit. The best way to prevent damaged credit or erroneous credit card debt is to keep close watch on your credit card bills and credit rating.

How Identity Theft Protection Works

Identity theft protection and credit monitoring programs are designed to protect customers through a combination of the following services:

-Monitoring credit reports from one (or more) of the three major credit reporting agencies

-Filing a fraud alert on your identity every 90 days, which forces credit card companies, banks, and other financial institutions to contact you directly before opening an account in your name

-Guiding victims of identity theft through the recovery process

-Compensating for work time lost in recovering money stolen by an identity thief

-Reimbursing money (up to a maximum limit) for certain types of identity theft

-Protecting your home and office computers from viruses, spyware, and/or software that encrypts your keystrokes as you surf the internet

-Monitoring for the use of your name or personal information in credit card applications, or in chat rooms and other locations where identity information is sold or exchanged

Are Credit Monitoring Services Worth the Expense?

The idea of credit monitoring is sound, and the practical aspects of it—such as regularly monitoring your credit rating and filing fraud alerts—help to protect your identity and credit. But despite its benefits, credit monitoring may not be the best way to ensure the safety of your credit rating. Some credit experts suggest that identity theft protection and credit monitoring services are not worth the cost, and that most people are completely capable of doing the job themselves.

Before purchasing this kind of service, consider the following potential shortcomings of identity theft protection:

-Most identity theft insurance and other protection systems are offered by credit card companies and banks – the same organizations that are less than careful with customer information in the first place, and who may simply be looking for another way to cash in on consumer fears by offering identity theft protection.

-Identity theft insurance only guarantees protection for certain methods of theft; for instance, it usually does not cover theft by family members, which is the most common type of violation.

-Although identity theft protection will usually cover legal fees if your identity is stolen, a lawyer is rarely needed, since most companies want to deal directly with the victim of identity theft.

Although there are some benefits to identity theft protection, there are many cases in which companies offer these services as a way to take advantage of uninformed consumers. If you do intend to purchase identity theft protection, make sure you shop around for a company that offers exactly you want and will keep you updated on their findings so you can be sure your money is being put to good use.

A great alternative to using an identity theft protection service is to carefully safeguard your personal financial information and to remain vigilant about monitoring your own credit report and credit card statements for unusual activity.  Here are some basic steps that you can use to safeguard your identity and credit:

1) have your mail sent to a post office box instead of your home mailbox

2) do not store account or credit card information on your computer.  Credit card statements, passwords and documents containing personally identifiable information such as social security numbers should be stored in a home safe or a safety deposit box at a bank.

3) Do not EVER throw away or recycle any documents containing personal information without shredding them first.

4) Get a copy of your credit report at least once a year and check it for strange activity or accounts that are unknown to you.

5) Go through your monthly credit card statements and check for transactions that look suspicious.

With some thoughtful attention and discipline you can easily protect yourself from identity theft and fraud.  While there is no guarantee that you will never become a victim – you can greatly reduce your risk by implementing some safeguards that are cheap and not very time consuming.  If you decide that an identity theft or credit monitoring service is a better option for you, be sure to do your homework and pick the service that makes the most sense for your personal situation.