Image: Credit card © Mike Kemp, Getty Images,

For years, I've been telling you that credit monitoring is a waste of money for a lot of people.

Then I signed up for a credit-monitoring service.

For several months, I've watched my credit scores bounce around and fielded alerts about changes to my credit reports. I've learned a few things. And I've come to a new conclusion: Credit monitoring is a waste of money for the vast majority of people.

Here are my biggest beefs about credit-monitoring companies:

1. They lie

Many of these companies tout "free" credit scores, and some even try to pretend they're the official, federally mandated site that offers free credit reports. (The real site is, by the way. The one and only.)

Way too many readers tell me they had no idea they were signing up for credit monitoring until the charges started appearing on their bills. If a credit-monitoring company gives you free scores, here's the scoop:

  • They're probably not the FICO scores that most lenders use.
  • Or you're signing up for credit monitoring that isn't free.
  • Or both.

Liz Weston

Liz Weston

If the scores you're getting don't say they're FICOs, they aren't FICOs -- they're something else, and they may not be scores that any lender uses.

2. They lie, part 2

When companies actually are upfront about what they're selling, they often advertise credit monitoring as identity-theft "protection." Credit monitoring doesn't protect you from identity theft any more than an ice pack protects you from getting been punched. It may help a bit afterward, but it doesn't prevent the blow.

Credit monitoring won't stop bad guys from taking over your credit cards or establishing new accounts in your name. At best, it will give you an early warning that the damage has been done. The "insurance" policies many monitoring companies offer are essentially worthless, since most people who are victimized face few, if any, out-of-pocket expenses.

3. They're expensive for what you get

You typically pay $15 to $20 a month, or up to $240 a year, for credit monitoring. That's a sizable chunk of change for many households. For that kind of money, you should get something significantly better than what you can get on your own for free. Most of the time, you don't. Many companies don't watch your reports at all three credit bureaus, and not all creditors report to all three bureaus. That leads to gaps in what's being monitored.

Also, creditors can be pokey in reporting changes, especially new accounts, to the bureaus, so you might not be getting as much of a head start on cleaning up any problems as you think.

4. They're confusing

The one rationale I thought might hold up was the idea that following the gyrations of your credit scores could help you better understand how credit scoring works. In reality, not so much.

For one thing, you're probably not seeing the FICO scores lenders use. Most credit-monitoring companies offer "consumer education scores" or VantageScores that are created from different formulas and that react differently than your FICOs do.

Even if you're using the service that offers actual FICOs, you may not glean much from short-term movements of your scores. Here's just one example: The FICO formula is set up so you can improve your scores over time by paying down your credit card balances. Higher balances can hurt your scores. But in watching my FICOs, I noticed sometimes they went down when my balances rose, and sometimes they didn't.

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In actuality, what's happening with your scores depends on a lot of different factors, and FICO keeps the exact details of its formulas a secret. So you can't predict precisely how any given action will affect your scores, or by how much. Trying to reverse-engineer it from the back end, just by watching your scores bounce around, is unlikely to increase your understanding. If your primary concern is improving bad or mediocre credit, you may be better off buying your scores from for $20 each once every few months and following the detailed advice the site gives on how to improve your numbers.

5. Making a profit on your paranoia is obnoxious

What you're getting access to is, after all, data about yourself as reported by your creditors. I'd argue that you should be able to access that data for free at least once a month, rather than just once a year. I also think we should have free access to our FICO scores. The idea that these services would lure you into paying hundreds of dollars for those numbers, particularly by fanning your fears of identity theft, really reeks.

Here are the latest facts about identity theft, according to Javelin Research, which conducts an annual survey on this problem:

  • 3.6% of Americans were victims of identity theft last year.
  • 1.1% were victims of new-account fraud, the most expensive kind in terms of the total amount stolen. (The rest were typically victims of existing-account fraud, including credit card fraud and other takeovers of existing accounts.)
  • The typical amount paid out of pocket by victims: $0.

For most people, dealing with credit card fraud or an account takeover is as simple as reporting it to the creditor. The bogus charges are erased, a new account number is issued, and life goes on.

New-account fraud is a much bigger pain in the behind. Even though the typical victim doesn't pay out of pocket, he or she spends a median 25 hours resolving the fraud.

That's no small thing. But if you're really concerned about reducing your risk, you should consider some other, typically lower-cost and often more effective options before you opt for credit monitoring. Among them:

Lock down your data. You know the drill: Don't carry your Social Security card, and be wary about giving out the number. Keep your financial information and tax files in a secured, locked location. Shred sensitive documents. Raise your privacy settings, and limit what you post on social-networking sites. Posting information such as your date of birth, a pet's name and your mother's maiden name are particularly stupid, since those are often used in the challenge questions banks employ to confirm your identity.

Monitor your accounts. Review every single transaction of every single bank and credit card account. Log on to dormant accounts occasionally to make sure they haven't been activated by a bad guy. Use your free access to your credit reports at, perhaps on a rotating system so you're looking at a different report every four months. And for heaven's sake, pay attention if you get a notice that your personal or financial information has been compromised. If the stolen data included your Social Security number, you need to go on high alert.

Consider security freezes. Also known as credit report freezes, these locks allow you to essentially shut off access to your credit reports. If someone applies for credit in your name and the lender checks your credit reports, it won't be able to see your data -- and likely won't approve the application. Security freezes are the best defense individuals have against new-account fraud, but they aren't necessarily cheap or hassle-free. If you're already a victim of identity theft, with a police report to prove it, you may be able to get freezes for free in your state. Otherwise, you typically have to pay fees of $10 to $15 to each credit bureau to freeze your reports, as well as fees to temporarily thaw them when you want to apply for credit.

Because of the fees involved, some experts have recommended putting free "fraud alerts" on your credit reports instead. That signals to lenders that you may have been the victim of an identity theft attempt, and that the lenders should take extra steps to make sure whoever is applying for credit is really you. But alerts typically last only 90 days and can be extended only if you have a police report or an affidavit showing you've been a victim.

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If you are at high risk of new-account identity theft -- you've already been a victim or you've been informed that your Social Security number has been compromised -- you might sleep better at night with a credit-monitoring service. But in my view, that money would be better spent on security freezes. Better to lock the barn door than just set an alarm.

Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.