What is credit monitoring?
Credit monitoring is a financial service that allows you track your credit score, as well as changes in your credit report. This allows you to have trackable data on your credit score to know how actions you take either positively or negatively affect your credit. You can also set up alerts for credit report changes that may signal a drop in your credit score.
Types of credit monitoring
Credit monitoring comes in several flavors. In some cases, you monitor credit report changes and your credit score from one specific credit bureau of the three that operate in the U.S. In other cases you can monitor all three credit reports. This is advisable, because the bureau reports are proprietary, meaning they don’t share information; one report may have an update that the others don’t.
Credit monitoring services also differ by how often they “pull” information. This refers to how often they update your credit report information. Daily pulls are recommended because this means you can know what your credit reports look like today.
How credit monitoring works
- In most cases, a credit monitoring service will provide you with a free credit score and credit report when you sign up. This helps you establish a baseline for your credit.
- You should also take some time when you first set the account up to set alerts, usually be text or email of updates or changes to your credit profile.
- Depending on the service you use, the platform may have recommendations for improving your credit that you can follow.
- Start taking those steps and use the monitoring service to track your progress.
- If you are building credit for the first time or rebuilding your credit after financial distress, you may only require the service for a limited time until you achieve the score you want.
- Otherwise, you may keep the monitoring service going to help you make strategic decisions about when to apply for new loans or credit cards. Many services even offer a credit estimator that will show you the credit impact of an action you want to take.
When should I use credit monitoring?
#1: When you need to rebuild your credit
Credit monitoring is extremely useful if you’ve recently come out of period of financial distress, facing bankruptcy, foreclosure, collections or simply a period of financial hardship that caused you to miss payments or juggle bills. You may have ignored your credit when things got bad, so credit monitoring allows you to assess the damage and make a plan to reestablish good credit.
#2: If you’ve recently been the victim of identity theft
Credit monitoring also serves the dual purpose of providing identity theft protection because it monitors changes in your credit. If accounts are opened in your name or accounts are overdrawn then you will be alerted immediately.
#3: If you’re making a major purchase, like a car or home
Interest rates and terms on major loans have a big impact on your ability to maintain a balanced budget. By using a credit monitoring service, you can take six months to strategically build credit before you apply, ensuring you get the best terms and lowest rates possible.