Identity Theft and Credit Monitoring

Written By: Nick Ziarek, CFP®, CFA

In recent years, identity theft has become an increasingly sophisticated and prevalent operation.  Long gone are the days of emails with poor grammar, broken hyperlinks, and typos everywhere. Cybercriminals are now employing advanced tactics such as phishing, data breaches, and the use of the dark web to exploit personal information. As fraud methods evolve, it is more crucial than ever to take proactive steps in protecting your personal information. Understanding options like credit freezes, credit monitoring, and comprehensive services like LifeLock can help safeguard your identity and finances.

Each option has advantages and disadvantages depending on your level of concern for identity theft and your willingness to pay for convenience or extra coverage.

Credit Freeze

A credit freeze prevents anyone, including yourself, from accessing your credit report. This makes it harder for identity thieves to open new accounts in your name because most creditors require access to your credit report before approving new credit. A credit freeze would be considered a more proactive step to protecting your identity.

To place a freeze, you must request it separately with each of the three major credit bureaus: Equifax, Experian, and TransUnion. The requests can be made online, by phone, or by mail. Once your credit freeze is in place, you will receive a PIN or password that is needed to temporarily (or permanently) lift the freeze should you decide to apply for new credit.

It is important to note that it is not just lenders that could request access to your credit reports. Cell phone carriers, home and auto insurance providers and even utility companies may need access before allowing you to establish new service, requiring you to call each company and temporarily lift the freeze.

Cost: Usually free.

Pros: Offers strongest protection against new accounts being opened fraudulently in your name.

Cons: You’ll need to temporarily lift or unfreeze your credit if you want to apply for new credit, which can be inconvenient.

Credit Monitoring Services

Credit monitoring services keep track of changes to your credit report, such as new accounts, credit inquiries, or changes to your credit score. These services alert you when certain activities occur that could indicate fraud. In that sense, credit monitoring is more reactive, drawing attention to potential issues before too much damage is done.

Cost: Can range from free to a monthly fee, depending on the provider and level of service. Some credit cards may offer free monitoring services.

Pros: Provides regular updates and alerts about changes to your credit profile, so you can take action if something suspicious happens.

Cons: Doesn’t prevent fraud; it only alerts you after the fact.

LifeLock

LifeLock is a broader identity theft protection service that offers more than just credit monitoring. It monitors your personal information across various platforms and databases (like bank accounts, social media, and public records), alerts you to suspicious activity, and the biggest benefit is it provides identity restoration services in case of fraud.

Cost: Typically more expensive, with plans ranging from around $9.99 to $29.99 per month or more, depending on the level of protection.

Pros: Offers a wide range of monitoring (beyond just your credit report) and provides support for restoring your identity if it is stolen, including reimbursement for stolen funds.

Cons: Can be pricey, and some of the services it provides can be found for free elsewhere or may even be included or offered as a rider on your home insurance policy.

Summary

Credit Freeze: Best for preventing new account fraud but requires action when applying for credit.

Credit Monitoring: Helps you stay informed about changes to your credit report but doesn’t stop fraud.

LifeLock: Comprehensive identity theft protection that includes credit monitoring, personal data monitoring, and restoration services but comes at a higher cost.

Taking proactive steps can help safeguard your financial well-being. Each solution offers its own set of advantages and potential drawbacks, so it’s essential to choose the option that aligns best with your level of concern and personal needs. By staying informed and vigilant, you can better protect yourself from the evolving threats of identity theft and minimize the risks to your financial security.