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Credit monitoring: Boon or bust?

You can't go to one of the major credit bureau's Web sites without seeing a pitch for credit monitoring. Plenty of other companies will provide the service to you as well.

But is it worth $39 a year -- or much more -- to have up-to-the-minute information on your credit? Apparently not.

Personal finance experts are fairly outspoken in their opinions of the value of credit monitoring.

"That's baloney," says Harvey Warren, president of the National Consumer Council, a Washington, D.C.-based consumer advocacy group. "Without my knowledge, my wife ordered it. I wanted to kill her."

A bit drastic, perhaps. Warren went on to say he views credit monitoring as hyper-vigilance.

"I don't have to go get my teeth cleaned every 30 days," he notes. "Twice a year is enough."

Howard Dvorkin, founder and president of the nonprofit Consolidated Credit Counseling Service Inc., in Fort Lauderdale, Fl., says it might be useful if someone actually used it, but he doubts that would happen very often.

"I live and breathe credit here, and I pull it once a year," he says.

Deborah McNaughton, author of several personal finance books, including The Insider's Guide to Managing Your Credit, is even more blunt.

"I think it's a rip-off if you go to an outside company to do that," she says. "By doing it yourself, you can get the information and pay a lot less money."

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When monitoring is worthwhile
About the only time the experts think credit monitoring is worthwhile is for people who have been a victim of identity theft, or are at high risk of it. And even then, it's simple -- and free -- to have the credit bureaus flag your account and contact you when there's activity.

Mike Mazzola is president of CreditXpert, a company that provides private label credit analysis tools for such companies as Consumer Info and True Credit. The typical user, he says, is someone who is concerned about identity theft, but his customers also are marketing the service as a credit management tool. Costs range from $39 to $89 a year.

Their product allows consumers to get their credit report, a FICO clone score, an index of where they stack up relative to the general population and a summary that outlines the kind of interest rates a person will get based on their credit score. They also show positive and negative factors affecting the person's credit, and specific actions that can be taken to improve the score.

"Credit monitoring has been around forever," he says.

It used to mean a person got a credit report mailed to them once every three months. Now, technology allows consumers to have real-time information on who's accessing their credit.

Their model combs all three credit reports, sifting through the individual items, and ranking them in order of impact on your credit report, he says. They also have a simulator that lets users plug in a variety of credit behaviors - buying a car, paying off a credit card balance, closing accounts they don't use - to see the impact on their credit score.

"That's not a bad service, if they're offering more than just alerts," McNaughton says. "The name of the game is get educated."

Dvorkin says that to him, signing up for credit monitoring is a lot like buying a membership to a gym. Most people start out going regularly but don't use it nearly enough to make it pay for itself.

Do it yourself
"If you do your own homework, you can do it yourself at no cost," he says. "It really comes down to how much work you want to do. You pay for convenience. Is it worthwhile? The more educated a consumer is about their credit, the better.

"Some of the information that accompanies these credit services is very good. Is that same information available elsewhere? Probably."

If you're absolutely determined to use a credit-monitoring service, McNaughton recommends using one provided by the credit bureaus themselves. That way, you're assured of getting the service from a reputable provider.

One thing you don't have to worry about, though, is pulling down your credit score if you use a credit monitoring service. Craig Watts, a spokesman for Fair Isaac Corp., the creator of the FICO score, says that as long as the inquiry is purely for the consumer's education and isn't related to a loan, it's not counted against a person's credit score.

The bottom line, Dvorkin says, is that all of the services are based on paying for information that's available for free or at a very low cost.

"People don't need this stuff," he says. "Why pay for something you can obtain for free or for little money? At the same time, I believe we signed an agreement to put that type of a service on our Web site. It's a revenue-generating proposal."

-- Posted: Jan. 9, 2003

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