A credit score isn’t the sole measure of financial wellness. Still, it can affect your ability to access credit, housing, and employment.
Some landlords examine credit scores to qualify potential renters. Employers may run credit checks, too, as part of their hiring decisions. Considering its influence on attaining financial goals, closely monitoring your credit score and report is imperative.
However, a recent poll found that 1 in 10 Americans are unaware of their credit score. Moreover, 2 in 10 don’t know how to check it. It’s interesting to note that errors in credit reports happen frequently, from incorrect personal information to inaccurate credit accounts.
According to Consumer Reports, approximately 13 percent of consumers encounter errors affecting their credit scores. Of these, five percent have substantial errors that trigger higher interest rates or denied credit applications. While this number seems insignificant, it equals around 10 million individuals.
Here, we’ll explore the significance of credit monitoring and how it works.
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Understanding How Credit Monitoring Works
As you use credit over time, you can see how different transactions can help or hurt your credit score. All this information is gathered in your credit report when you apply for and use credit, such as credit cards, lines of credit, or loans.
It also tracks crucial financial information like payment history, credit limit, and account balances. This report gives a complete overview of how you’ve managed credit in the past and current credit situation.
As the name implies, credit monitoring is a service that alerts you of changes to your credit report. Depending on the service, it may let you track any adjustment in your credit score. Suppose you apply for a new loan. The lender will typically examine your credit report.
Generally, the monitoring service will notify you about that inquiry in your credit file. It will also inform you of any unusual changes or discrepancies in the report.
If you receive a notice about unusual activity on your credit report, it’s on you to take prompt action. That means you’re responsible for informing the creditors, freezing your account, and recovering your identity.
The credit monitoring service can’t undo the damage or notify the credit companies and financial institutions of suspicious activity on your credit file. Its primary purpose is to inform you of any strange activity or changes to your accounts, preventing it from becoming a bigger problem.
Why Credit Monitoring Is Essential
Now that you know what credit monitoring can and can’t do, you might be wondering whether you need it. There are a few things to consider when deciding if credit monitoring is right for you. Here, we’ll discuss how it could be helpful for your financial health.
Fraud detection
Credit monitoring helps protect your credit score by tracking changes in your reports and alerting you of any unfamiliar activity. Unauthorized credit inquiries or account openings can mean someone is stealing your identity or using your information fraudulently.
In a time with more cybersecurity risks, anyone can be a victim of identity theft. With credit monitoring, you’ll know immediately and can address the problem before it can cause further financial harm.
Credit improvement
Credit monitoring allows you to access your financial data in one place. That makes checking your credit score or pulling your credit report easier. You can use that information to fix or improve your credit score.
For instance, you can have a negative remark on your file because of an honest mistake. With credit monitoring, you can catch these errors as soon as they get added to your report. Sometimes, you can have it removed if you contact the lender or collection agency.
Credit monitoring can also reveal the factors that impact your score. Let’s say you accumulate a high credit card balance in a month. Your score may drop even if you make the full payment by the due date. This informs you that you must keep your credit card balances low to maintain a high score.
Financial readiness
Since credit monitoring gives you real-time insights into your credit health, it can help you become financially prepared.
For example, you can better plan for financial goals like purchasing a home or car once you know your credit status. Suppose you have a low credit score. You can have more time to improve it before applying for a loan. This can provide you with an advantage to negotiate better terms with lenders.
Be Proactive in Managing Your Credit Health
Proactively monitoring your credit health is imperative to making better financial choices. It enables you to spot and address potential discrepancies affecting your financial goals. It also helps you identify ways to raise your credit score, from making timely payments to lowering credit utilization.
The steps discussed above can be beneficial in taking control of your credit health. However, credit monitoring is only one aspect of maintaining a healthy credit standing. Developing positive credit habits is equally crucial to support your credit monitoring efforts.
Besides checking your credit report, make it a habit to consistently pay your bills on time and use no more than 30 percent of your available credit limit. Remember, having sound financial health is more important than maintaining a good credit score.
Also Read: Cybersecurity Is An Urgent Challenge For Companies
