Credit monitoring services can make any borrower’s life a lot easier, but at what cost?
Most credit report companies that offer free services are getting their profits from somewhere. It’s not secret that the best way is through referral programs. For example, when you sign up at Credit Karma, they exemplify a few credit card offers that “fit” your profile. These get pushed on you, in the disguise of a credit restoration tool.
Now, that does not make the company manipulative. But, there are many other schemes credit tracking businesses try to pull. As such, you need to be aware of these possible frauds and scams before you seek a credit monitoring service for yourself!
The Free Trial Period Trick
Many “free” credit report companies are not actually giving you anything for free. They will just offer the first month, or even just a few days, at no cost. From there, you need to pay the full membership costs. Some companies are even sleazier, and they will charge your credit card for more than what’s stated on their website. You might even get caught by surprise when you find out they charged you for a full year of payments up-front.
To avoid getting ripped off, sign up with credit report companies that do not need any credit card information. For example, you don’t need to give your payment details to get free tracking and monthly scores through Credit Sesame. But, they will let you add your payment info and upgrade to daily report pulls. If you trust the site, just make sure you are aware of any costs before you become a member.
The False Claim of “Free Credit Reports”
In 2005, the Fair Trade Authority (FTA) pointed out scam sites operating with false claims of free credit reports. It starts out with the attacker trying to get the person to sign up for an apparently free credit report and/or score. For example, the attacker could link to a free credit report offer in a spam e-mail. This might be under their company’s name, or through a phishing link to a site that impersonates a legitimate business.
The FTA authorizes AnnualCreditReport.com as the sole provider of free credit reports and scores. Any other company that uses this promotional tactic is misrepresenting what they have to offer. Their end game could be to steal money from you, or just to get you to subscribe to a paid monthly plan.
The only sites you should trust when getting your credit report are:
- CreditExpert.com (Experian)
Any others must first undergo a careful review. But it’s worth the effort, because you can access your reports and scores more often than just once a year. Not all are scams, but you do have to be careful when choosing the right service for you!
FreeCreditReport.com & FreeCreditScore.com
10 years ago, the FTC took the owner of FreeCreditReport.com (and FreeCreditScore.com) to court. This lead to a $950,000 settlement, paid out in services to the victims of their misleading ads. This came about as they were claiming to offer free credit reports and scores, though that wasn’t the truth. The government only permits one company (AnnualCreditReport.com) to give out free credit reports.
This case lead to the Credit CARD Act of 2009 enforcing companies to clarify their advertisements. When promoting free credit reports, businesses must state the following:
“This is not the free credit report provided for by Federal law.”
Businesses must also inform customers that AnnualCreditReport.com is the true free credit report source. The punishment was not seen as high enough at the time. Which makes sense, seeing as the company spent $72 million using manipulative marketing tactics.
The Credit Card Scam
Sometimes credit report websites get made just to steal credit card information. These websites might still let you access your report, but usually you get nothing. The company might just charge your card a nominal fee, or they could use your card information to defraud you. The end game is never known, but the dangers of credit card scams are obvious.
Stick with a credit monitoring company that does not make you give them your credit card details. At worst, pay for your monitoring with a pre-paid credit card. This way, you will not have to worry about your credit card information getting stolen.
The Pressure to Build New Credit
Most credit report companies that offer free services will still try to earn money by suggesting new credit lines to you. This is not a good thing if you are in the midst of rebuilding your credit. In the end, you will get recommended a card that fits your weak credit state.
If you already have some credit established, you might be better off waiting another six months or a year. By then, you could open a credit line with a more favorable interest rate. You might even qualify for a rewards card. That said, there’s nothing wrong with getting a secured credit card when first starting out. In fact, many credit card companies will give a part unsecured, or at least offer to switch to unsecured within the first year.
The Accuracy of Your Credit Report
These companies advertise themselves as the leaders in their industry. They hype you up on the ability to get credit reports and scores on a consistent bases. While that helps, it’s important to know there can be inaccuracies in the information you see.
This boils down to which credit reporting bureau the business uses when presenting your report. These companies might also differentiate by the type of credit score they show. For example, “thin file borrowers” on Credit Karma will see their VantageScore 3.0 rating. This is a specific credit score algorithm, which the bureaus made to help lenders qualify fresh borrower. All three credit bureaus share the same VantageScore 3.0 rating algorithm.
When you get a credit report direct from one of the reporting bureaus, you do not have to worry about the accuracy of the report. At worst, the information might be different on your reports with the other two bureaus. The same is true for your FICO score, as varying information can show between your reports. It all depends on what shows at each particular credit bureau.
The Difference Between Your Credit Report and FICO Score
The information you see on your credit report is what got reported to that credit bureau. The bureau might also provide you a credit score, but this is not the same as your FICO score.
Your FICO score is the main credit rating one can hold. It’s the metrics used by most lenders when measuring the trustability of an applicant. This rating factors the information from your credit reports with all three reporting bureaus. As credit card companies tend to just supply a report from one bureau, you do not know what the lender sees.
These companies often use different algorithms, like the VantageScore 3.0 method. If you want your FICO score for free, you must sign up for a free trial through one of the three bureaus. This will give you a report and score for the first month, for free, and then you will have to cancel the membership.
The FTC authorizes AnnualCreditReport.com to give free credit reports. That’s the only company that holds this authority. This means any company that claims to have this offer will be misrepresenting themselves. It’s worth knowing what your FICO score is, but be careful how you get it.
The Benefits of Credit Monitoring
The benefits of using a credit monitoring service are obvious.
Identity theft protection. It does not matter if you are away on vacation, or just at work, you can get a text the second someone tries to steal your identity. Even if it’s just a suspicious transaction, the credit monitoring company will still let you know. There’s no more having to worry about when you will become a victim, as you can fix the problem right away.
Dispute inaccurate entries. It can become a pain to try and argue with the reporting bureau about an old entry that was wrong. But, if you can catch the inaccurate entry right away, then there’s a better chance of the situation blowing over. The quick fix is important, as you do not want an unknown problem to drag your score down low enough that you get rejected for new credit.
Track credit score changes. As you work to create or fix your credit, it’s helpful to see the cause and effect of your actions. A reliable way to track your credit score changes is what you need. This allows you to see what you do from one period to the next. It also makes it easy for you to know when you are ready to apply for a new, more prestigious credit card.
Contact debt collectors. Many borrowers are guilty of ignoring debt collections agencies as they call. It’s understandable, seeing as how some do get aggressive. Yet, you might find yourself needing their contact information once you start fixing your debt. Credit monitoring services give you access to contact details for all companies that post on your report.
While there is nothing magical about credit monitoring, it’s still a great service for everyone to use. You always want to be in control of your credit, and your identity. By using a credit monitoring service, you never have to worry about becoming a fraud victim. Plus, you can focus all your energy on building your credit, instead of wondering why it’s going downhill.
While credit monitoring is helpful, you must understand how important it is to use the right service. Many “free credit report” companies are just lying to you about what they offer. A true credit monitoring service will get labelled as such, and it will have many features that help track your credit.
The “Krebs on Security” blog features an informative post on this subject. It’s worth reading to get a better understanding on how these companies can help. But, keep in mind that some of these might not work for you. If you are still not sure which service will work best, just post a comment below and we’ll help you out!