Credit Monitoring Services: Everything You Need to Know

Kelly Boyer SagertUpdated July 9, 2023

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

From time to time you might receive offers for credit score monitoring services in your email inbox and snail mail — and you may also see advertisements for them online. But what is credit monitoring, exactly? Is it something you need? How does it work? How much does it cost?Below, we’ll explore the answers to these and related questions, looking at some specifics of these services as well as insights about credit scores and how they typically work. .

What Is a Credit Monitoring Service?

Credit monitoring is a service offered to watch for changes and updates to a consumer’s credit record and report the results to the consumer, typically by text, phone call, or email. Providers of credit monitoring services generally automate the gathering of information, making it quicker and easier for their customers to get snapshot pictures of their overall credit status.Alerts may be triggered when a new account is opened in the customer’s name, a change occurs in the balance of a credit card (including when a balance is paid off), a new loan or credit card is applied for, a bankruptcy is filed, or anything else that signals a change that could affect the customer’s credit report or signal identity theft.It’s important to understand that this type of monitoring won’t prevent identity theft from taking place to begin with (although an alert for a new account that you didn’t open warns you that you may need to investigate), nor will it freeze your credit or alert you to fraud issues that aren’t reflected in your credit report (like someone withdrawing money from your bank account). Plus, fraud and/or errors won’t be automatically corrected.

How Does Credit Monitoring Work?

Overall, these services monitor a consumer’s credit scores and reports, along with behavioral changes in credit usage, to flag instances of potential fraud. Thus the real question may be how do credit monitoring companies obtain this information?The three major credit reporting agencies (Equifax, Experian, and TransUnion) maintain files on most consumers in the United States. Your credit file contains your name, address, and previous addresses, along with your Social Security number and other identifying data. If you hire a credit monitoring service, it watches for changes in these files and sends corresponding alerts to you. Depending on what provider you use, it may also provide additional services, like giving you access to your credit reports and credit scores.

What Exactly Is a Credit Score and Why Is It important?

So what’s the importance of your credit score and why might you need to keep tabs on it? Credit scores are three-digit numbers that assess your creditworthiness. They typically range from 300 to 850, with a good credit score being on the higher end of that spectrum and a bad credit score being on the lower end.When a potential lender is making its decision about whether to offer you a loan and on what terms, your credit score can quickly give it a sense of how much of a credit risk you might be. Consumers who have signed up for credit score monitoring services can receive alerts as their number fluctuates. Each agency that generates credit scores uses a unique algorithm. Generally, though, what affects your credit score includes your debt (mortgage, revolving credit such as credit cards, personal loans, and so forth), your bill-paying history, and the amount of your available credit that you’re actually using, among other factors.

What Goes Into Your Credit Score

Sometimes, your credit score might not be as high as you’d like. There can be many reasons for this, but typically it’s triggered by one or more of these:

Late payments
Missed payments
Using a significant amount of available credit
One or more lowered credit limits
Closing a credit card
Incorrect information on credit reports

These factors aren’t all equally weighted. Making late payments or missing payments altogether can play a larger role than closing a credit card that isn’t being used, for instance. Filing for bankruptcy or being foreclosed upon can be among the most harmful things to your credit score.It may be helpful to look at what factors can lower your score for guidance. For example, it’s clear that making payments late can quickly lower your score, so paying on time consistently is crucial to raise your score. It’s also important to manage what’s called your credit utilization ratio, which compares how much credit you have available to you to how much of it you’re actually using. If you’re using too much of it, lenders may think that you’re financially overextended and not able to take on any new debt.

How to Calculate Your Credit Utilization Ratio

To calculate your credit utilization ratio, add up all your outstanding credit card balances (and line of credit balances, too, if you have any). Next, add up all of your available credit limits, then divide the outstanding balances by the limits and the result is your credit utilization ratio. Recommendations are to keep that figure below 30% at most, and, ideally, below 10%. That means that if you calculate you have a combined credit limit of $10,000:

Combined charges of $2,800 would put you within the recommended limit of 30%, being at 28%
Combined charges of $900 would put you within the ideal range, below 10%
Combined charges of $4,000 would put you above the recommended limit of 30% at 40%

Another smart move might be to check for and fix any errors that might appear on your credit report, especially if they reflect badly on you.If you’re going to look at your credit reports, you should know that as a consumer, you’re entitled to one free credit report from each of the three major credit reporting agencies each year through the Fair and Accurate Credit Transactions Act (FACTA). This does not come with an alert system that shares any updates or changes.

Is Credit Monitoring Worth Paying For?

The answer to this question may depend upon how much credit monitoring costs. Because options include both free and fee-based credit score monitoring services, costs can be as low as zero, and it’s hard to beat that price. So even if a service doesn’t provide everything that you’d like, it may well have some value. Typically, free credit score monitoring is funded through ads that the service shows to consumers who use its services. A monitoring company using this business model may earn a commission when a customer buys an advertiser’s services or products through the company’s site. One exception is SoFi Insights, which offers weekly credit score updates and money tracking to its members at no cost.Free credit score monitoring services may offer more limited services than ones you pay for. They often don’t provide access to all three credit reports; instead, they typically report information from one or perhaps two of them. Or consumers may receive only a summary of the reports from their free credit monitoring service.Some credit card issuers provide this type of monitoring as a benefit. Or if you are a victim of a data breach, you may be entitled to a period of free monitoring.Fee-based monitoring, on the other hand, often allows you to keep track of more comprehensive information – like all three of your full credit reports and your credit score – through one account. It may also offer more identity theft-related protections. These fee-based services may cost between $8.99 and $39.95 per month.

Business Credit Scores and Financing

If you’re a small business owner, your business may also have a business credit score. These scores are provided by business reporting agencies, including Equifax, Experian, FICO, and Dun & Bradstreet, and scores may typically range from zero to 100. There are also business credit monitoring services available. As with services to monitor personal credit, they track changes to credit scores and can help alert you to potential fraud.At some point, your small business may need funding, and a good credit score may be helpful. Generally, lenders like to see good business credit scores when they consider loaning money to companies. Yet, not all businesses have ideal scores. For example, since they have little or no credit history, startup businesses might face more difficulty getting small businesses loans or unsecured business lines of credit. In those cases, it may help to use Lantern, where business owners can see a list of network lenders who may fit their borrowing needs.

The Takeaway

Credit monitoring can be a useful tool if you feel you need to be vigilant about identity theft and fraud. One plus to a credit monitoring service is that it can help you maintain a healthy credit score, and that, in turn, may increase your chances of being able to access good loan and line of credit terms.Even with a great credit score, when it comes time to get a loan, it can pay to shop around. After filling out one simple form, individuals and business owners alike can receive a list of financing options through Lantern targeted to their specific needs and situations. Because no hard credit pull is done at this time, it won’t affect your credit score*.

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About the Author

Kelly Boyer Sagert

Kelly Boyer Sagert is an Emmy Award-nominated writer with decades of professional writing experience. As she was getting her writing career off the ground, she spent several years working at a savings and loan institution, working in the following departments: savings, loans, IRAs, and auditing. She has published thousands of pieces online and in print.

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