Thousands of frugal and safety-conscious Americans sign up for credit monitoring every year, which is supposed to prevent against identity theft and other problems that can result in one’s credit report. The three credit bureaus – Transunion, Equifax and Experian – each offer credit monitoring for a little less than $10.00 per month, and they are sucking in even more business by offering a free credit report when you sign up for credit monitoring services.
But should you sign up for credit monitoring?

First of all, identity theft can occur in numerous ways, not all of which can be prevented by any known service. Credit monitoring alerts the subscribed consumer any time their credit is checked by a lender. Most of the time, the alert comes by e-mail, though some credit monitoring services also provide alerts by phone. This allows the consumer a heads-up if there isn’t any reason for their credit report to have been pulled, thereby catching identity theft before it occurs.

Obviously, this can be a valuable service for anyone who might be a potential identity theft victim, and since you can’t possibly know when such tragedy might strike your life, credit monitoring might seem like a sensible proactive solution. However, there are problems with it.

First, most credit monitoring services cost nearly $10 per month, which would amount to nearly $120 per year. That might not seem like a very large amount, but you must remember that the cost only covers one credit bureau. For example, let’s say that you sign up for Experian’s credit monitoring service. Then an identity thief applies for credit in your name, but the creditor runs the information through Equifax. You would not be alerted because Experian did not receive the request for your credit report, and the credit monitoring system didn’t do you any good.

Knowing this, you might want to sign up for credit monitoring services with all three credit bureaus, which would catch any fraudulent activity. The down side is that the $120 you were spending every year on credit monitoring has suddenly risen to $360 in annual costs. Paying more than three-hundred dollars every year for something that might or might not be beneficial is simply not in the cards for the average American.

Further, there are other ways in which identity theft can be accomplished; a scam artist doesn’t have to apply for credit in your name in order to defraud you. If your current credit card number is stolen, you could just as easily become a victim and credit monitoring will be of no use whatsoever.

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Before you decide to sign up for credit monitoring services, consider these factors:

1. Are you a likely candidate for identity theft? The people who are at the most risk for identity theft are those with high credit scores and clean credit reports. If you have had credit problems in the past, you won’t be attractive to scam artists.

2. Can you afford temporary damage to your credit report? Even if you are the victim of identity theft, the problems can be taken care of over time. Once you’ve filed an official dispute with the credit bureau, it is only a matter of time (usually several months) before the matter is investigated and expunged from your credit report. If you won’t be applying for a mortgage or other loan in the near future, it shouldn’t be a concern.

3. Are you doing it for the right reasons? Never sign up for credit monitoring just because you want the free credit report. By law, you are entitled to a free annual report, which should be sufficient to keep everything in line. Further, you can always order a credit report through myfico.com for a nominal fee just to check up on things during the year.