Monitoring Your Credit in 2013

Death and taxes are often referred to as the only “certainties” in life.

I’d like to suggest one addition that has been guaranteed for the past dozen years, which is that identity theft will be the number one complaint to the Federal Trade Commission.

While you’re mulling over New Year’s resolutions for 2013, can I suggest that you consider the possibility of protecting your credit reports and reduce the chances that you’ll become a victim of identity theft?

There are three well-established methods of protecting your credit reports and they all have pros and cons.

But, one thing is indisputably true…they’re all better than doing nothing.

Low Risk of Being a Victim of ID Theft

If you’ve never been a victim of identity theft, you’ve never lost your purse, never had a credit card stolen and you are diligent about destroying materials with your name on them, then I’d suggest your risk of being an identity theft victim is pretty low.

For consumers who are in the low risk category, you may be able to get away with simply reviewing your credit reports from time to time.

You can do this for free at annualcreditreport.com (all three of your reports) and via websites like CreditSesame (your Experian credit report) and CreditKarma (your TransUnion credit report).

If you suspect your information has been compromised or could be used to commit credit fraud, then you can always add a fraud alert to your credit reports.

This is free and can be done at any one of the three credit bureau’s websites. I personally like the user interface at the Experian fraud webpage.

A fraud alert will let lenders know that your personal information may have been used to apply for credit and any applications should be confirmed with the consumer directly.

Fraud alerts can be placed for a few months or as long as several years, depending on your scenario. But, alerts are only effective if lenders read and comply with your instructions to contact you for authentication.

Moderate Risk of Being a Victim of ID Theft 

If your wallet has been lost or stolen or if you suspect that you may become a victim of identity theft, then a fraud alert may not be enough.

The second level of credit report protection is credit monitoring. Credit monitoring is a service that passively tracks your credit report/s for changes that may be indicative of fraud.

For example, if a new address, a new account or a new credit inquiry is added to your credit report, then a fraudster may have applied for credit in your name.

Credit monitoring is normally a fee-based subscription service that will run you in the neighborhood of $14 to $20 per month, but CreditSesame and CreditKarma both have free options.

You can monitor your Experian credit report for free at CreditSesame and your TransUnion credit report for free at CreditKarma.

myFICO has a fee-based subscription service that allows you to monitor your Equifax credit report and your FICO score (the one based on your Equifax credit report) for suspicious changes called ScoreWatch.

The fee-based subscription services will normally allow you to monitor all three of your credit reports via one service (Experian, Equifax, TransUnion.)

Finally, any good credit monitoring service will alert you via text message or email if something suspicious has hit your credit reports so you can react immediately.

High Risk of Being a Victim of ID Theft

If you’ve already been a victim of ID theft or you’ve gone through a bad divorce or break up, then you’re at significant risk of identity theft.

The strongest form of credit report protection is the credit freeze or security freeze (they’re the same thing).

A credit freeze takes your credit reports out of circulation and no lender or service provider can access them unless you allow them to do so.

A credit freeze is free if you’ve been a victim of fraud in the past. If you have not been a victim, then there is a one time nominal fee to freeze your credit reports.

The freeze prevents anyone with whom you do not have a lending relationship to pull your credit reports and/or credit scores. And, because no lender is going to extend credit without first seeing your credit reports, any new fraud is stopped before it starts.

Credit freezing can be cumbersome. You have to set up a security freeze account with each of the three credit bureaus and then “thaw” them when you want to allow someone to access your credit reports.

Still, for someone who is at great risk of ID theft the inconvenience is a small price to pay for peace of mind.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.