Why I Use a Credit Monitoring Tool

I am not exactly sure if credit monitoring services are worth the money, but with nearly 10 million cases of identity theft annually I think there is some evidence to support a certain degree of paranoia. I have chosen a middle of the road approach to credit monitoring. I pay for an annual service that pulls my TransUnion report weekly and looks for changes. It is MyFico.com's Identity Theft Security Deluxe. It costs about $50 per year.

There are more expensive services that pull from all three agencies weekly, but at $100+ per year I just think they cost too much. My rationale is simply this: should someone open a new account in my name, it will likely show up at all three agencies. I want to comfort of a weekly check-up, but I don't want to pay a fortune. Identity Theft Security Deluxe seems to provide a nice balance.

The super low-budget approach to credit monitoring is to go to annualcreditreport.com once per year and pull a FREE credit report from Equifax, Experian, and TransUnion the three credit agencies. Just look them over and make sure all the accounts on there are actually yours. I do this once a year to make sure that nothing unusual has shown up at Experian or Equifax and not at TransUnion. The problem with doing only this is that if identity theft occurs the month after you check, eleven months might go by before you know that there is a problem.

I view a credit monitoring service as a necessary evil. I don't really want to pay $50 per year, but I figure it is worth the insurance policy because it will ultimately save me a lot of time and money if I catch fraudulent account activity after one week or month instead of after one year.

Getting a Loan? Be Sure to Maximize Your Credit Score First.

At some point in your life you will probably need to get a loan for a house or (hopefully not) a car. When it comes time to do this, the first thing you will want to do is maximize your credit score (e.g. FICO score) in order to minimize your interest rates and/or assure that you qualify for the loan. There are two categories of things you can do to maximize your score: 1) preventative maintenance and 2) close in priming.

Preventative maintenance on your credit score is a general way of life and should be done all the time. The key things you should be doing to make sure you have a high score are:

1. Always pay your bills on time, always. Missed payments kill your score and last a long time.
2. If you have a short credit history and decide you don't need an old credit card anymore (especially your oldest) shred the card but don't close the account. The longer your credit history is, the better your score is likely to be.
3. Don't take out significantly more credit than you need. That means not getting suckered into tons and tons of store credit cards just for a free promo. Four or five credit cards is probably fine (especially if you just kept a couple old accounts open to lengthen your history but don't use them), twenty is not a good idea.
4. Make sure your credit report is accurate. Go to http://www.annualcreditreport.com/ to get your free annual credit report and be sure everything is right. With all the fraud out there today, I definitely recommend doing this once per year.

Close in priming should consist of a couple of things:

1. Pay off your credit card bill the week before your statement closes for a couple of months before you need a big loan. Even if you pay off your card balance in full each month the prior month's balance shows up as money you owe on your credit line. Because credit card companies look at your total debt to your total credit line (called utilization) as a major factor in your score, paying off your card in advance so your balance is very low when you go to request credit will help your score.
2. Don't open a bunch of new cards or accounts before you go to get your big loan. Many recent credit inquiries make you look "credit hungry" and lower your FICO score.