Credit monitoring services are fee-based subscription services intended to allow you to receive notification whenever there is a change to your personal credit report, such as a new credit inquiry, a new credit account, or significant change to an account balance. These services can potentially offer you early notification of certain types of fraudulent credit-related activity. However, these services are also sometimes inaccurately marketed as the ultimate solution in personal identity theft protection.
Fraudulent financial accounts or credit fraud is only one potential outcome of an identity theft incident, and thieves can easily misuse your information in many ways that may never show on your credit report.
According to the Federal Trade Commission, credit account-related identity theft comprises only a small percentage of all identity theft cases. In 2010, government documents and benefits fraud was the most common form of identity theft reported to the FTC (19%), followed by credit card fraud (15%), phone or utilities fraud (14%), and employment fraud (11%). Other significant categories of identity theft reported by victims were bank fraud (10%) and loan fraud (4%).1
Credit monitoring services do not always work the way that identity thieves operate
Many consumers are unaware that credit monitoring services were developed and offered by the credit reporting agencies long before identity theft became a crime epidemic, and were developed for the purpose of assisting consumers in managing their credit rating based upon the way that the credit reporting system operates (not the way that identity thieves operate).
These services were not developed for the purpose of preventing identity theft, and identity thieves continually develop new tactics to misuse victims' identities while avoiding detection. A new and rapidly growing form of identity theft, known as synthetic identity theft, vividly proves this point. In synthetic identity theft, thieves use combinations of real and fictitious information - creating a synthetic identity that does not neatly fit within the credit reporting mold and often bypasses detection by traditional credit monitoring services.
For example, in December of 2006, the New York Times published an article entitled "Protectors, Too, Gather Profits from ID Theft". A brief excerpt from that story follows:
"Melody Millett was shocked when her car loan company asked her if she was the wife of Abundio Perez, who had applied for 26 credit cards, financed several cars and taken out a home mortgage using a Social Security number belonging to her actual husband.
Beyond her shock, Mrs. Millett was angry. Five months earlier, the Milletts had subscribed to a $79.99-a-year service from Equifax, a big financial data warehouse, that promised to monitor any access to her credit records. But it never reported the credit activity that might have signaled that they were victims of identity theft." 2