As a responsible adult, you know that a strong credit score can help you qualify for loans, snag lower interest rates, and even get a job. But what happens if your credit takes a hit? Or worse, what if someone steals your identity and runs up debts in your name?
One way to protect your credit score is to get credit protection. In this article, we'll explain what credit protection is and how you can properly set it up.
We've done our research, checked authoritative sources on credit protection, and reviewed some of the best credit protection programs. We also sought expert insights on how to protect your credit.
Don't miss out on crucial factors to consider, so you don't end up with credit protection that's not enough for your needs. Keep reading to the end to learn about our unique tip for protecting your credit!
Why do you need to maintain a good credit score?
Credit is an important part of anyone's financial life. It's a way to build a financial history and establish a good credit score.
A good credit score can help you finance large purchases, such as a car or a house, and help you qualify for better jobs. Good credit can also help you get lower interest rates on loans, saving you money.
Meanwhile, a bad credit score can mean you won't be able to get a loan when you need it, or that you'll have to pay a high-interest rate on any loans you do take out.
Lenders use credit to decide whether to loan you, how much to lend you, and at what interest rate. Utility companies, landlords, and even employers may also check your credit as part of their decision-making process.
However, when your personal information is stolen, identity thieves can use it to open new lines of credit in your name. This can leave you with a poor credit rating and debt. In some cases, identity theft can also lead to legal problems.
Fortunately, by enrolling in a credit protection program, you can help to safeguard your personal information and reduce the risk of identity theft.
What is credit protection?
Credit protection is a service that helps you resolve any errors on your credit report and track your credit score over time. It helps you keep your credit score high and recover from financial setbacks that could damage your credit score in the event of unforeseen circumstances, such as job loss, illness, or death.
If you have credit protection, and you lose your job or experience another type of financial hardship, for example, the credit protection company will step in and make your loan or credit card payments for you. This can help you avoid defaulting on your loan, incurring late fees, or damaging your credit score.
Credit protection can also be especially important for those who have been victims of identity theft. It can help to catch any suspicious activity before it results in financial damage.
There are a few different ways to get credit protection, but the most common way is to sign up for a service through a credit card company or financial institution. It will usually involve paying a monthly fee.
Another way to get credit protection is to buy a standalone policy from an insurance company. This can be a good option if you want to tailor your coverage to your needs.
Types of credit protection
Different types of credit protection plans are available, so it's important to choose the one that best fits your needs. Some plans will cover your payments if you lose your job, while others will make sure your debts are paid if you become disabled or pass away.
To find the right plan for you, compare the features and benefits of different credit protection products. Once you've found a plan you're comfortable with, contact the provider to sign up.
Here are the different types of credit protection:
1. Credit monitoring
Credit monitoring is a service that tracks your credit score and alerts you of any changes in your credit reports. This can include new accounts, changes in balances, and late payments.
There are many benefits to credit monitoring, including:
Timely detection of identity theft
If your personal information is stolen and used to open new accounts in your name, credit monitoring can help you catch it early. This is important because the sooner you detect identity theft, the easier it is to resolve.
Improved credit score
You can improve your credit score by catching errors on your report and taking steps to improve your credit history. This can save you money by making you qualified for lower interest rates on loans and lines of credit.
Better negotiation power
When you know what's on your credit report, you'll be in a better position to negotiate with creditors if there are any negative items. Additionally, if you decide to dispute an item on your report, having documentation of your good payment history can help get the item removed.
Peace of mindÂ
Knowing that you're regularly checking your credit report can help you sleep better at night. This is especially true if you've been a victim of identity theft in the past.
While credit monitoring services can help protect your credit, there are also some potential disadvantages to consider.
Not all credit monitoring services are created equal
Some services may only provide alerts for important changes to your credit report, while others may also offer tools for dispute resolution and fraud protection. Some services include only basic monitoring, while others provide more comprehensive protection, such as alerts if your personal information is used to apply for new credit products.
As a result, it's important to carefully compare the features of different services before choosing one.
Costs of credit monitoring can vary widelyÂ
The cost of credit monitoring will also vary depending on the level of service you choose and the features you want. Some companies offer free credit monitoring, while others charge a monthly fee of $10-$30.Â
Credit monitoring will not prevent identity theft or fraud
If identity thieves have already stolen your information, credit monitoring can help you spot suspicious activity and take steps to resolve the issue. However, it cannot prevent your information from being stolen in the first place. For this reason, it's important always to take precautions to safeguard your personal information.
If you’ve considered all the advantages and disadvantages we’ve mentioned above, it’s important to know that there are a few different ways to get credit monitoring.
One way is to sign up for a credit monitoring service. Many reputable companies offer this service, and they'll regularly check your credit report for any changes.
Another way is to sign up for a credit card that offers it as a benefit. Some cards will give you access to your credit score and report and alert you to any changes.
You can also get credit monitoring by contacting the three major credit bureaus (Experian, TransUnion, and Equifax) directly. They'll each provide you with a free copy of your credit report every 12 months.
2. Credit card purchase protection
This is a type of credit protection that helps insulate you from financial loss if the items you purchased with your credit card are lost, stolen, or damaged. Major credit card issuers typically offer this as an added perk for using their card.
While the terms and coverage vary by issuer, most credit card purchase protection programs will reimburse you for the cost of the item up to a certain limit if it's lost, stolen, or damaged within a certain timeframe (usually 90 days after the purchase was made). Some policies also cover items that are not as described by the seller, or that turned out to be counterfeit.
Credit card purchase protection can be a valuable benefit, but it's important to understand the conditions and limitations of the coverage.
For example, many policies have a maximum payout per item, and they may exclude certain types of items from coverage. You may also have to pay a deductible to receive reimbursement, and the claims process can be time-consuming and cumbersome.
Most purchase protection plans cover items with a maximum value of $10,000 per occurrence. In addition, many plans have a deductible of $50 or $100. So, for example, if you purchased a new television for $1,000 and it was stolen from your home two weeks later, your credit card company would reimburse you for the cost of the TV minus the deductible.
To get purchase protection, you'll need to file a claim with your credit card issuer. You'll need to provide proof of purchase, as well as documentation of the damage or loss.
Ultimately, whether or not credit card purchase protection is right for you will depend on your spending habits and your overall financial picture. If you're concerned about the possibility of damage or theft, it may be worth paying the extra fee to have this peace of mind.
3. Credit insurance
If you're worried about how you would manage your finances if something happened to you, credit insurance may be worth considering.
Credit insurance is a type of credit protection that can help you meet your financial obligations if you lose your job, become disabled or die. This can make it easier for you to keep up with your monthly bills and avoid defaulting on your loans.
Credit insurance typically pays a monthly benefit that you can use to cover your loan's minimum monthly payments.
For example, let's say you have a $1,000 balance on your credit card and you're making $50 monthly payments. If you become disabled and are unable to work, credit insurance would pay a portion of your bill each month so that you could continue to make at least the minimum payment.
There are four main types of credit insurance:
- Life – covers the repayment of debt in the event of the death of the borrower
- Disability – pays a benefit if you become disabled and are unable to work
- Unemployment – pays a benefit if you lose your job
- Property – covers the cost of repairing or replacing damaged property
Credit insurance can be a helpful safety net, but there are a few potential drawbacks to it that you should be aware of.
- One potential downside is that the premiums can be quite expensive, especially if the coverage is for a large amount of money.
- Credit insurance typically only covers a portion of the outstanding balance on a loan, meaning that you'd still be responsible for repaying the rest of the debt even if you lost your job or became disabled.
- In some cases, the death benefit from a credit insurance policy may also not be enough to fully repay your loan, leaving your family with the remainder of the debt.
The cost of credit insurance depends on several factors, including the amount of the loan, your credit history, and the lender's policy.
In general, the higher the risk that you'll default on the loan, the higher the premium will be. For borrowers with good credit, the cost of credit insurance can be as low as $0.85 to $1.35 a month per $100 borrowed.
You can purchase credit insurance as an individual policy or through a group plan that your employer offers.
However, before you purchase a policy, make sure to read the fine print carefully so that you understand exactly what's covered and what's not. Be sure to check the fees and compare them to other companies offering similar services.
Is credit protection worth it?
On the whole, credit protection can help safeguard your financial well-being. It can help to guard against identity theft, fraudulent charges, and other forms of financial fraud. In addition, it can also provide peace of mind if you lose your job or become disabled and cannot make your monthly payments.
However, it's important to remember that credit protection is not a magic solution – if you cannot make your payments, you'll still end up with a bad credit rating. And it's still possible to experience financial difficulties even with credit protection in place.
Ultimately, whether credit protection is worth it will depend on your circumstances. If you're concerned about the possibility of financial hardship, it may be worth paying the extra fee for this peace of mind.
On the other hand, if you're confident in your ability to manage your finances and don't feel like you need this type of coverage, you may want to save your money and forego credit protection.
Conclusion
Credit protection can be a helpful way to manage your finances and protect your credit score, but it's essential to understand the pros and cons before purchasing a policy. By choosing a credit protection plan that fits your needs, you can rest assured that you have some peace of mind if something unexpected happens.
If you're considering enrolling in a credit protection plan, be sure to do your research and compare different options to find the right fit for your unique financial situation. With the right credit protection plan in place, you can rest easy knowing that you're prepared for whatever life may throw your way.
Aidan has been writing about personal finance for over 6 years. Prior to this, he worked as a Corporate Finance Analyst where he specialized in Due Diligence, Company Valuations and more. He is a CFA charterholder.
