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Chapter 17: Misleading Credit Monitoring Systems

Why You Shouldn’t Trust Credit Monitoring Systems.

If you are concerned about the safety and protection of your credit report and credit accounts, you might have considered signing up for a credit monitoring service. However, for most people credit monitoring is misleading when it comes to measuring your credit risk scores in preparation for a home purchase using your VA Home Loan Benefit.

Of course, the idea behind credit monitoring is a good one, as simple and obvious as saying, “Lock your front door.” Safety can go a long way. You always want and need your credit report and credit cards to be free from errors and fraud. Credit monitoring services may work for some people who want peace of mind, but you really don’t need to pay a specialty service to track your credit scores and inform you of unusual activity. These days, banks and credit card companies aggressively monitor for fraud protection and many offer credit monitoring services for free as a value-added service. This is good, but it falls short when preparing to apply for a mortgage.

The way to best protect your credit is to educate yourself about credit basics, and then monitor your credit on your own. How well do you understand your credit score and credit report? Many people have heard about credit scores from the colorful commercials that have been on the airwaves. Many of these “free services” get your attention and then present an up-sell to sell you paid services. Often folks don’t think about their own credit health until they need to open a new credit card or obtain a loan. Your credit score doesn’t automatically give someone an a green light to loan a certain dollar amount, but rather it is a gauge that suggests your credit worthiness to lenders. It represents your likelihood and ability to repay a loan. Lenders are assessing the risk of default when they are loaning you money.

Most Americans have at least heard the term “FICO score,” though many dismiss it if they aren’t looking to open a credit card or negotiate an installment loan. Who wants to know their creditworthiness until they absolutely must? FICO, or Fair Isaac Co., is a company that created the FICO score, a number arrived at by utilizing information provided by the three major national credit reporting bureaus: Equifax, Experian, and Trans Union. As it relates to applying for a mortgage loan, a credit agency (kind of like a broker of credit data) will give a mortgage lender the ability to check your credit from each of the three bureaus. This data is extracted from the three bureaus simultaneously and commonly filtered through three different versions of the FICO scoring model, resulting in the production of your credit risk scores. It is common for Experian to use FICO V.2.0, Trans Union to use FICO Classic.4.0, and Equifax to use BEACON 5.0 FICO. These scores often differ depending on the different credit bureau. Some creditors don’t even report to the top national bureaus. When differing data, collected by each bureau, is pumped though different software versions, this produces different scores on your report!

A key point for you to understand is that a credit monitoring system is likely monitoring only one bureau and likely NOT utilizing the same FICO software versions that the mortgage industry uses. When it comes to applying for the largest piece of credit in your life, your home loan, your credit monitoring system may literally have you blindfolded, as your “mortgage credit scores” might appear much different than what you had been monitoring and hoping for.

Let’s look at the value a credit monitoring service brings to the table. A credit monitoring service monitors your credit report and sends you a text, email or letter should any unusual activity occur. While you want to monitor your credit to have the best error-free credit score possible, a credit monitoring service often monitors your information at only one of three credit bureaus, while you hope that your number and information is similar across the board. Buying an incomplete credit report is as helpful as purchasing a bucket with a hole in it.

Worse, credit monitoring services are sometimes claiming to sell you something they can’t actually deliver – protection. While there are bona fide identity-theft protection products such as LifeLock, a credit monitoring service is less valuable as identity theft protection despite their claims.

Identity theft is a nightmare because criminals who obtain personal information find a way to open credit cards and banks accounts and even obtain loans based on your name and credit. Credit monitoring services are simply not equipped to handle such surveillance. An all-encompassing identity theft protection company, unlike a credit monitoring service, networks with hundreds of companies—from auto lenders, to retail, to pay day institutions, to black market websites. And, because the network is directly affiliated with the identity theft protection company, you can be notified of suspicious activity…often in minutes.

By contrast, if suspicious activity occurs in one of your accounts or on your credit card, a credit monitoring service likely does not have the network that an identity theft company may have. The reporting of any suspicious activity must first go to a credit bureau—a middle man of sorts—who will contact you much later. Also, a credit card company or bank doesn’t have the insurance that a company like Life Lock has, nor the resources to spend up to one million dollars hiring experts to track your case and expedite your credit recovery efforts. An identity theft protection company can shield your credit in ways that credit monitoring services simply can not. (We do not specifically endorse any particular identity theft company.)

Why spend $120 to $240 a year on a credit monitoring service that provides such minimal value? In fact, credit monitoring services can be dangerously misleading. It’s like someone reassuring you that they set your burglar alarm when they did not. That creates a false confidence that could come back to haunt you.

Would it be better to do it yourself! There are a few common sense things that you can to do, and we will provide a guideline. You might even find monitoring your own credit kind of fun. It certainly is interesting! Taking personal responsibility for your money and credit is the foundation and beginning of wealth creation. Managing your finances well means creating opportunity and options. Here are some proactive things you can do:

  • Ask your bank and each of your credit card companies if they report to all three credit bureaus.
  • Be on the alert for companies who promise too much. A credit monitoring service, as stated above, cannot prevent identity theft. The most they can do is alert you about unusual activity on your accounts, and then only after the fact.
  • If you do receive warnings from your bank or credit institutions, heed them! Pay attention! Address the issue! Consider yourself warned and take further steps to protect your credit and your name.
  • Don’t fall for the credit monitoring services that claim they are free. They likely are not. The only free credit reporting is through the bureaus themselves. They all offer a free credit report once a year. Get it every year.
  • Purchase your “tri-merge” credit report from a mortgage lender. Even purchasing it four times a year is less expensive and more accurate than using a credit monitoring service.
  • Review each transaction of every bank and credit card account.
  • Always work with banking and credit institutions you trust.
  • Develop a personal relationship with those in your bank.
  • Protect yourself in a myriad of ways. Don’t carry your social security card with you, and be leery of giving out your social security number.
  • Keep your financial information and income tax files in a secure place.
  • Shred sensitive documents, anything that has information about you.
  • Raise your privacy setting, which are tools on the internet and social media. Privacy settings control who can see your data (and most importantly, who can’t).
  • Limit personal information on your social media sites. It is foolish to list your birthday, pet and/or children’s names, mother’s maiden name, etc. That information is the very substance of security questions used by banking institutions to prove your identity!
  • If you believe or fear a card has been compromised, cancel it for security and peace of mind.
  • Monitor your bank statements relentlessly for fraudulent charges.
  • Be careful where you use your debit card, including using ATMs in bad neighborhoods or where a machine is not in plain sight. Ambitious thieves use what are called “skimming machines” to steal information off your card.
  • Verify who is asking for information or passwords and on whose behalf and why.
  • Be extra careful at restaurants or bars or anyplace where your credit card is taken out of sight.
  • Protect your information from computer malware. Identity thieves can use malware to infect your computer and steal information. To counter, always run your security updates. Learn how malware works, and in order to counter it, turn on your firewall and limit those who have access to your computer.
  • Use a Credit Security Freeze (also known as a credit freeze, a security freeze, or credit report freeze.) A credit freeze prevents others from seeing your credit report and prevents new credit from being issued if someone other than you applies for a new account, credit card, or a loan in your name. A credit freeze is certainly an inconvenience for you, but it is a tool in your arsenal. It offers you a defensive strategy unlike any other protective measure.
  • Ask one of the three credit bureaus to put a fraud alert on your credit report. According to the Federal Trade Commission, they must tell the other two companies. An initial fraud alert can make it harder for an identity thief to open more accounts in your name. The alert lasts ninety days but you can renew it.
To obtain a copy of your mortgage credit report, let So Cal VA Homes help. Call us at (949) 268-7742.

Call a Sr. VA Home Loan Technician today!

(949) 268-7742

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