In the recent past, consumers have flocked to credit monitoring agencies as a way of monitoring their credit reports and scores. Such services provide notification anytime a change occurs in your credit file including account openings, payment delinquency, credit limits, and others. This can help one to prevent identity theft especially if one notices any strange activity and takes action immediately.
However, one issue that concerns credit monitoring services is whether they tend to harm your credit scores. The short answer is still no; it is not possible to just use a credit monitoring service and have your credit scores affected. Here’s a closer look at why monitoring your credit is indeed score-neutral and how you can do it effectively.
A brief look at how credit monitoring service operates
Many companies involved in credit monitoring obtain information from one or more of the three major credit reporting agencies: Equifax, Experian, and Transunion. They get your latest credit data through what is termed a soft inquiry.
Soft inquiries are not visible to other people unlike hard inquiries where one can see them and they affect credit scores. You don’t get alerted on your credit reports that you have been rewarded or that your award will help improve your credit rating. Soft inquiry only permits the service to pull your credit details with your consent.
However, there are “hard inquiries,” which are credit checks that result from your application for a new line of credit. Some of the ones that fall under this category are; Applying for credit cards, personal loans, and mortgages among others. When you have so many hard inquiries within a short period, you will notice your scores reducing slightly. Still, the inquiries made by credit monitoring services don’t come under this category.
Why credit monitoring will not help to raise your credit scores
Here are a few reasons why using a credit monitoring service will not hurt your credit scores:
- These services run only soft check inquiries that do not appear on other lenders’ credit reports. Credit checks that fall under soft inquiries do not impact your total inquiries or scores.
- Even if you check your credit reports with the bureaus to access your files no harm happens. The logic here is that unless you are trying to secure new credit, your score is not at risk.
- Credit monitoring services keep you informed about negative credit habits such as paying your bills in default. This gives you a nice opportunity to correct your mistakes and fail better so that you are not going to drop the scores.
- A few services offer score simulators that enable you to comprehend how specific monetary activities will affect the scores before you proceed. This puts you in a position to make rational money decisions.
- It is important to use the identity theft protection features to be able to catch fraud before it takes its toll and leads to score drops. This includes services that can essentially search the black web for your identity.
The most important thing to know is that acquiring initial credit report copies, as well as regularly checking credit reports, are considered soft inquiries only. In case a company pulls your credit report without your permission, it is unlawful, especially if it does a hard inquiry. All legitimate credit monitoring services only conduct Soft Inquiries which do not cause a drop in the credit scores.
Credit monitoring in its real sense has no negative side to it, but it is essential to know when it can be damaging.
There are only two instances when a credit monitoring service could negatively impact your credit scores:
- If you enter any other type of subscription that charges you upon the expiry of the free trial period. The billing could appear as a fresh credit account which does slightly affect your rating for some time.
- If identity theft takes place and derogatory late payments or collections accounts or any other fraudulent activities are reported on your credit report. As a fact, credit impacts from fraud are possible, and even though they are accomplished when you monitor your scores, they can still negatively affect them occasionally.
In those circumstances, albeit very limited, normal credit monitoring on its own will pose no harm to your credit score in any way. The enhancement of the credit knowledge and security that comes with the monitoring of your credit reports and scores is far worth the risk to your scores.
The takeaway
In addition, the current practice of credit monitoring does not affect one’s credit score in any way, and it is strongly advised for consumers of all types. It is crucial to frequently monitor your credit reports to identify any inaccuracies or illegitimate transactions. This is because monitoring services simplify it by presenting alerts and tools each time there are changes in your credit file.
Instead of focusing on the future consequences of your score, credit monitoring can help you keep a close eye on your identity and credit. Those minor soft inquiries are mind-boggling compared to the major advantage of protecting your financial identity.
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