3 Reasons Why You Might Need a Credit Monitoring Service

Your credit score is one of the most important, and frequently misunderstood, aspects of personal finance. Many people want better credit, but don't know how to get it. Some people work hard and pay their bills on time, but still don't have credit history. Other people might have good incomes, but bad credit.

Credit monitoring services can improve your know-how around credit scores and your credit history. Several credit monitoring tools can give you clearer visibility into your credit score and alert you to signs of trouble -- for free.

Here are a few reasons why you might want to sign up for a credit monitoring service -- even if you already have good credit.

1. Understand your credit score

Too many Americans struggle to understand credit, even though it's an essential part of their personal finances. Many people don't know what their credit score is, if their credit score is "good" or not, or how that credit score is calculated.

The good news is: you have the power to improve your credit score. Credit scores are always changing alongside the everyday money moves of your financial life. How you manage your credit cards or other personal credit accounts, when you make payments on time, when you pay off a balance, and other financial behaviors can help your credit score.

Your credit score is a signal of financial trustworthiness. Being "creditworthy" means that banks and credit card companies trust you to be a low-risk borrower who will repay the money they lend to you. If your credit score is good, banks and credit card companies will welcome you with open arms and better offers. But if your credit score is low, you are vulnerable to painful consequences and higher prices -- on everything from credit card interest to car insurance.

Signing up for a credit monitoring service, like Intuit Credit Karma, Credit Sesame, or Experian Credit Monitoring, can help you keep an eye on your credit. These services will let you see your FICO® Score for free, and will show you the different factors that go into your credit score. CreditWise by Capital One is another credit monitoring service, but instead of your FICO® Score, it shows your TransUnion® Vantage® 3.0 score.

If you have fair to poor credit, these credit monitoring services can help you understand why your credit score is low, and give you insights and support on how to improve. If you already have good credit, a credit monitoring service can still be worth your time, because it helps you stay on top of your credit and keep up with your good financial habits.

2. Watch out for signs of identity theft

Identity theft is becoming a bigger problem all the time. It seems like every few weeks, I get a new email or notice in the mail telling me that my personal data has been compromised in some corporate data breach. If thieves and hackers steal your confidential information, they can use it to open credit cards and other financial accounts under your name. Before you know it, someone might have rung up thousands of dollars of purchases and ruined your credit. Recovering from identity theft can be expensive, time-consuming, and stressful.

That's why it helps to try to respond quickly to identity theft if it happens. Credit monitoring services cannot prevent identity theft, but they can help you watch out for signs of fraud, such as suspicious credit inquiries or new accounts being opened under your name that you did not authorize. If you spot any suspicious activity on your credit monitoring service, you can take action. If you believe that you are a victim of identity theft, start by filing a report at IdentityTheft.gov. Then report the fraudulent activity to the credit bureaus and ask them to put a fraud alert on your credit report.

Credit bureaus will also let you do a credit freeze, where you can pre-emptively block any new hard credit checks -- that means no one can open new credit under your name. If you don't intend to open any new credit cards or get any new mortgages, auto loans, or personal loans for the foreseeable future, a credit freeze can help prevent identity theft. (You can always remove the credit freeze in case you want to apply for credit.)

3. Improve your credit

If you have limited credit history, have bad credit, or are trying to rebuild your credit after a bankruptcy or other financial trouble, a credit monitoring service might help you improve your credit score. Several credit monitoring services offer special credit-building tools:

• Credit Sesame: The Sesame Credit Builder debit card can improve your credit score with everyday spending. You spend with your debit card, but your payments get routed through a "virtual" secured credit card, and reported to credit bureaus. This helps you build positive payment history.
• Experian: The free Experian Boost® service can increase your credit score by adding your monthly utilities, rent, cellphone service, and insurance payments to your credit history.
• CreditWise by Capital One: This free service offers a personalized summary of your credit, and tailored tips on how to improve your credit score.
• Credit Karma Money™ Credit Builder: If you have a credit score of 619 or lower, this credit-building service from Intuit Credit Karma could help improve your credit score by an average of 21 points in four days.

Bottom line

Whether your credit score is below 619 or above 800, almost everyone can benefit from credit monitoring services. These tools are often free, and can help you keep an eye on changes in your credit. With credit monitoring services, you can keep up your good habits, watch out for identity theft, and build your credit score.