Can Credit Monitoring Services Prevent Identity Theft?

GAO Reports They Detect, but Do Not Prevent ID Theft

Group of tools for making fraudulent credit cards
Fraudulent Credit Card Crime on the Rise. Corbis News / Getty Images

While all credit monitoring services alert their users to suspicious or fraudulent changes to their credit accounts, they cannot actually “prevent” identity theft.

According to a report issued by the Government Accountability Office (GAO), credit monitoring services typically alert their users when new credit accounts have been fraudulently opened or applied for in their names. However, since they only detect fraud, rather than preventing it from happening, credit monitoring services are limited in actually “preventing” identity theft.

For example, many users are not aware that their credit monitoring service does not alert them to unauthorized or fraudulent charges made on credit cards they already have, such as misuse of a stolen credit card or credit card number.

Credit monitoring and other components of “identity theft services” may be purchased by individuals or provided to them free when their personal information may have been stolen in a company’s organization’s data breach.

Pros and Cons of Identity Theft Services

Along with credit monitoring, the overall category of identity theft services includes identity monitoring, identity restoration, and identity theft insurance. According to the GAO, each one of these component services comes with its own benefits and limitations.

  • Credit Monitoring: does help detect new-account fraud, like the unauthorized opening of new accounts. However, credit monitoring does not protect against existing account fraud, such as misuse of a lost or stolen credit card, or credit card number.
  • Identity Monitoring: scans sources other than credit reports to alert consumers when their identities show up in places like arrest records, sex offender registries, change-of-address requests, or illicit websites used by identity thieves and hackers.  However, the GAO was unable to determine the actual effectiveness of identity monitoring in helping to resolve the problems caused by identity theft.
  • Identity Restoration: will attempt to resolve the effects of identity theft, but as the GAO found, your results may vary. While some identity restoration services offer real hands-on help, such as dealing with creditors and government agencies on the victim’s behalf, others offer only self-help information, leaving the dirty work up to the victim.
  • Identity Theft Insurance: covers some out-of-pocket expenses related to the process of restoring the victims’ identity and credit record, such as postage and notary fees; costs of obtaining credit reports, implementing credit freezes, or replacing documents; and attorney fees. However, the insurance rarely coverers the actual direct financial losses. In addition, the GAO found that the number and dollar amounts of claims actually paid by identity theft insurance have been low.

    The research studied by the GAO showed placed the estimated U.S. market for identity theft services was about $3 billion in 2015 and 2016, with from 50 to 60 companies offering services.

    How Much Can Identity Theft Services Cost?

    Among the 26 identity theft service companies reviewed by the GAO, some offered a single standard package including some or all of the above services, while others offered consumers their choice of two or more services with slightly different features at slightly different prices.

    Prices for the 26 identity theft packages considered by the GAO, ranged from $5-$30 a month. Prices for the five larger, most widely advertised providers varied, but all offered at least combination of services priced at about $16–$20 a month. One of the largest providers reported in its public filings that its monthly average revenue per member was about $12 per subscriber per month.

    Prices for the various providers’ packages varied based on:

    • Whether their credit reports monitored one, two, or all three of the nationwide credit reporting bureaus;
    • whether identity monitoring is included;
    • the number of individuals or family members covered; and
    • the number of additional tools provided, like regular credit scores or tools to protect personal computers from identity theft.

    Services Offered Free in Data Breaches

    Of course, many people get credit monitoring services for free, but under the worst of situations – data breaches.

    In recent years, some of the nation’s biggest companies, health insurance providers, and several federal government agencies, including the IRS, have suffered massive data breaches resulting in the potential theft of the personal information of millions of individuals. The GAO reports that in about 60% of these incidents, the breached entities offered free identity theft and credit monitoring services to their customers. In fact, reported the GAO, one out of every five identity theft services subscriptions in 2015 were activated due to data breaches. Between 2013 and 2015, just five major data breaches resulted in free identity theft services being offered to over 340 million people.

    However, the GAO found that these free services provided by companies and government agencies do not always actually address the risks posed by the particular data breach. For example, breached companies and agencies often offer free credit monitoring, which detects fraudulently opened new accounts, even when only existing credit card information, names, and addresses had been stolen – data which does not directly increase the risk of new-account fraud.

    So, if the protection is limited, why do data-breached companies provide free credit monitoring?

    A representative of a major retailer that suffered a data breach involving “tens of millions” of its customers told the GAO the company decided to offer credit monitoring despite knowing it would not really help in order to give their customers “peace of mind.”

    Free Alternatives to Paid Credit Monitoring

    As both the GAO and the Federal Trade Commission (FTC) point out, consumers can monitor their credit status themselves at no cost.

    All three nationwide credit bureaus – Experian, Equifax, and TransUnion, are required by federal law to provide consumers with one free credit report per year when requested. Along with credit rating, these reports will show any new credit accounts opened under the consumer’s name. By spacing their requests between the three credit bureaus, consumers can get one free credit report every four months.

    Consumers can also get one free credit report from all three credit bureaus every 12 months by requesting them through the government-authorized website,