What Is Credit Monitoring and How Does It Work?

Feb 16, 2022

5

min read

W

orking to improve your credit helps guarantee that you will obtain loans when you need them. Thus, it is crucial to monitor your credit to know where you stand and how you can improve them.

Consider credit monitoring as regular health checkups. It helps you figure out the problems in advance to solve them before it's too late.

What Is Credit Monitoring?

Credit monitoring is the process of tracking any unexpected changes or transactions that may have occurred via any of your accounts. It also helps keep track of your credit scores to know where you stand.

Thus, credit monitoring helps you build your credit before applying for a mortgage and loans. It keeps you on a safer side by allowing you to improve your credit history before the application.

Like regular health checkups for good physical health, frequent credit monitoring is essential for good financial health.

How Does Credit Monitoring Work?

Credit monitoring monitors your credit report for any changes, and if there are any changes in your credit report, it quickly notifies you.

Consider it as google verifying your unauthorized logins and asking you if you are trying to log in from another device. Similarly, credit monitoring looks for any changes than the usual pattern and alerts you about it.

Credit monitoring may notify you of the following changes to your account:

A new account or application under your name.
Payments that are 30 days or more past their due date.
An account that has been deactivated.
Changes to your credit file due to a new address or name.
Bankruptcies, property liens, and judgments on your name.

Customers generally use credit monitoring to protect themselves against identity theft. However, they are also used to track a consumer's credit report and credit scores.

Why Should You Monitor Credit?

Protection From Identity Theft

Identity theft is the most common legal issue, which can vary from making unlawful purchases at retail or online stores using stolen credit card information to submitting false social security numbers or medicare claims.

The worst thing about identity theft is that the thieves exploit this information without the victim's awareness. Such activities can be difficult to identify until long after, by which time the attackers may have completely damaged an individual's credit.

Credit monitoring helps you to take action after the issue is found quickly. It tracks your credit reports and notifies you immediately when a new account is open under your name.

If you suspect this is an act of identity theft, you can immediately contact your credit card company to freeze the account.

Checking For Errors

According to a study conducted by the Federal Trade Commission, around 5 % of U.S consumers found errors in their credit reports.

There are chances that your creditors may submit your credit information incorrectly. Slight misinformation can significantly impact your credit report and credit score.

For example, your credit card company may mistakenly report that your account was not paid when you have been paying the bills timely. This can harm your credit as late payments decrease your credit score significantly.

Thus, since a small mistake can have a considerable impact on your credit score and chances for your loan approval, you'd want to know as soon as possible to clear things up.

Thus, it is essential to regularly track your credit history and reports to identify the errors and solve them quickly before it harms your credit score.

Improve Your Credit Score

Credit scores play a vital role in your financial life. The higher your credit score, the more likely you are to receive a lower interest rate on loans or lines of credit, saving you money in the long term.

Credit monitoring services monitor your credit reports to determine your credit score and where you stand. It also provides insight into the factors that influence your score and advice on improving it over time.

Some credit monitoring services even have a simulator that estimates the impact of new loans, mortgages, auto loans, and your credit score.

How Frequently Should You Monitor Credit?

Typically, creditors report your account activity to credit-reporting organizations every month.

As a result, credit experts advise you to periodically monitor your credit to detect inaccuracies or fraud and obtain a sense of your credit health.

However, you can check your credit more frequently since monitoring your credit will not damage your score.

There may be instances when you often wish to check your credit, such as while applying for new credit or looking for a new job.

However, there is no need to check daily, as this might cause unnecessary worry. Your most current credit activity isn't reflected on your credit reports. It takes time to update your credit.

Conclusion

Credit monitoring can be a helpful tool in finding and addressing problems with your credit reports. It is vital to have sound financial health and a high credit score.

Maintaining a close check on your credit can also assist you in detecting suspicious activity and detecting signs of identity theft.

You may take steps to mitigate the impacts of credit card fraud, data breaches, and other forms of identity theft.

However, It's crucial to remember that, while credit monitoring can alert you to significant changes in your credit reports, it's up to you to take action.

If you identify errors in your credit report or problems that might result from suspicious behavior, you should act as quickly as possible.