Who Buys Credit Protection?

Your credit rating affects your ability to get loans of all types, like vehicle financing, mortgages and new credit cards. You control it through your credit use and payment history, but fraud and identity theft can mess up an excellent rating without your knowledge. Credit protection is a way to find out quickly if your identity is compromised.

Definition

Credit protection is a paid service that monitors your credit reports for changes that might indicate the opening of fraudulent accounts or other identity theft warning signs, such as address changes. Some companies also check underground websites and databases not available to the general public for your personal information, according to the Consumer Federation of America. Services may also include help in recovering from financial damage if you do get victimized.

Risk

Of the 8.1 million Americans who were victimized by identity theft in 2010, the average victim spent 33 hours resolving the resulting problems and incurred $631 in related expenses, according to the California Office of Privacy Protection. Past victims buy credit protection services to get an early warning of future problems and assistance in handling the damages if they are victimized again.

Cost

Credit protection services cost between $150 and $200 per year as of April 2011, according to MSNBC Today Money writer Sheryl Nance-Nash, while federal law lets you check each of your three credit reports annually at no charge. People use paid credit protection when they feel the cost is worth the convenience of automatic monitoring as compared with remembering to order the free reports regularly through the Annual Credit Report website.

Coverage

Some credit protection services monitor only one credit report, but many companies offer deluxe plans that cover all three credit bureaus. Instead, you can spread out free self-monitoring over the course of a year by ordering one report every four months, Nance-Nash advises. This leaves gaps during which you might miss fraudulent activity. Paid credit protection appeals to people who want continuous coverage and immediate notification of potential problems.

Alternative

Credit freezes are a paid credit protection alternative. Freezes carry a small cost in some states, although they are usually free to identity theft victims, according to Consumers Union. Typically they do not cost more than $10, although you must place freezes separately and pay the fee to each credit bureau. During a freeze, lenders cannot access your credit reports to process a credit applications unless you provide a special password. Freezes stop fraud rather than notifying you when it occurs, but some people buy credit protection instead because of the inconvenience of having to thaw their records whenever they want to fill out an application. Maxine Sweet of the Experian credit bureau warns that you might miss out on a competitive interest rate or special deal because of the delay.