Credit Monitoring Services – Are They Worth The Cost?

A friend of mine, who is responsible for data security for a large institution, was recently lamenting the fact that his employer constantly fights his efforts to make the network more secure. Naturally, I asked why. He said there is an inverse relationship between security such as credit monitoring services and convenience. The more secure something is, the less convenient it is to use. He drew an analogy, using my house as an example. It would be more convenient to come and go if I didn’t lock my doors. Remembering my keys and using them to unlock the door is an extra step. Adding an alarm would make my house more secure, but it would also make it more cumbersome and time-consuming to come and go. Yet, most people lock their doors, and many have alarms. Somehow, when it comes to computers, however, we do not want to take extra time.

Security vs. convenience:

This security vs. convenience debate is what comes to mind when I think about protecting ourselves from identity theft, especially in a time when so much information is stored in the cloud. It seems every day we are hearing about hackers stealing personal information for corporate databases (

So what can we do to protect ourselves? The easy but largely ineffective step many people take is to sign up for credit monitoring services, such as Lifelock. These services cost $120 – $300 per year, but many people have been offered them for free if they are customers of a company that has been hacked. This has become the defacto PR move for companies whose client data has been compromised.

Most credit monitoring services do not prevent ID theft:

The problem with credit monitoring services is that they do not prevent ID theft. They just notify you if ID theft does happen, or when someone opens up lines of credit or applies for accounts in your name. This can be somewhat helpful, but by the time you get the alert, it may be too late. Damage may have already been done and you are left to clean up the mess. Also, most alerts are false alerts, meaning that you intended to apply for credit.

The more effective and less convenient approach is to freeze your credit. This blocks potential creditors from being able to view or “pull” your credit file. Companies will not grant lines of credit or open an account in your name if they cannot check your credit first. The downside is you will have to unfreeze your credit when you want to apply for anything that requires a credit check. Placing a freeze can usually be done online with the four consumer credit bureaus (Equifax, Experian, TransUnion, and Innovis) and may have a small one-time fee ($0-$15). You’ll receive a unique Personal Identification Number (PIN) that you can use to unfreeze your credit file, which usually takes about 24 hours.

What are the real costs and risk with identity theft?

Also, it is hard to gauge the true costs and risks associated with identity theft. Although we hear a lot about it, according to Consumer Reports, two-thirds of cases of ID theft involve stolen credit cards, not stolen identities. Federal regulations limit your liability, usually to $50 per account, and even that is often waived by card issuers. The majority of ID-theft victims had zero out-of-pocket loss. A minority did lose money—the average was $309 for existing-account fraud and $1,205 for new-account fraud. The biggest cost is probably your time to fix the problem and potential damage to your credit score.

One last helpful tip: ID thieves sometimes intercept and fraudulently use pre-approved credit card offers that you receive in the mail. You can opt out of receiving these offers (permanently and for free) at OptOutPreScreen.com.