What Are the Four Types of Credit Protection You Need?
Your credit score is one of your most valuable financial assets. A significant drop in your credit score can impact your ability to get loans, find rental accommodations or buy real estate, or land a job. A poor credit history can even increase the interest rates on your insurance policies and cause utility companies to request a deposit on services.
Unfortunately, few people think about protecting it the same way they do their physical credit card or cash they carry around in their wallet.
That’s where credit protection services come into play.
Credit protection services are some of the only ways you can protect your credit score and avoid fraud and identity theft. But do you need them?
In this guide, we’ll explain how credit protection works, the four different types of credit protection you could use, and whether or not it’s worth it for you to protect your credit.
What Is Credit Protection? What Does It Do?
Credit protection refers to the services, tools, and laws that help protect consumers’ credit scores against financial fraud, identity theft, or changes in their ability to pay off debts.
There are numerous factors that impact your credit score — from your payment history to your overall debt level and credit utilization ratio. There are different types of credit protection that can help protect each factor of your credit score.
Here are just a few examples of how you can benefit from credit protection services:
- Protects your credit score from fraudulent accounts and loans. If an identity thief manages to open new accounts or take out loans in your name, it can destroy your credit score. Credit monitoring is a form of credit protection that warns you of changes to your credit score or new accounts opened in your name so you can shut them down before the damage is done. These services are almost always paid — for example, as part of a credit monitoring service.
- Protects your credit card balance in case of life changes. Most credit card companies, lenders, and financial institutions offer insurance in the case of job loss, critical illness, or death. This form of credit protection will cover the minimum payments on your credit card balance or loans to protect your credit score. These services are often paid — for example as a percentage of your balance.
- Protects purchases you make with extended warranties and repairs. Credit protection also includes policies and protections that come with your credit card account. For example, if you buy an appliance or electronic product with your credit card, your purchase may be protected with an extended warranty or return window or even against theft or damage. These services are often included with your credit card for free.
The bottom line: Credit protection safeguards your large purchases and overall credit score against fraud, damages, and theft. Without it, you’re putting your financial livelihood at risk.
The 4 Main Types of Credit Protection
The type of credit protection you require depends on your needs, employment situation, and risk level. Here are the four main types of credit protection and how to decide whether they’re right for you:
1. Credit monitoring and alerts
If your identity has been stolen, scammers may try to open new accounts or take out loans in your name.
At worst, this can have a serious impact on your credit score and leave you saddled with debts and issues that can take years to resolve. But even if the fraudulent account or loan is denied, the credit inquiry can still appear on your credit report for up to two years and have a negative impact on your credit score.
In 2022, the Federal Trade Commission (FTC) received over 750,000 reports of credit card, bank, and loan fraud — costing Americans billions in losses [*].
Credit monitoring apps and services track changes to your credit score and can alert you to any new accounts or inquiries into your credit report. This can help you quickly shut down scammers before they do serious damage to your credit score.
Pro tip: Make sure you’re covered by three-bureau credit monitoring. Some credit monitoring companies only check your credit with one or two of the three main credit reporting agencies, leaving you open to fraud.
When to use credit monitoring and alerts:
- If you’ve already been the victim of identity theft. Nearly 50% of all identity theft victims are repeat victims [*]. If your personal information has already been compromised, you should be actively monitoring your credit for signs of fraud so you can shut down scammers and freeze your accounts.
- If you want peace of mind knowing you’ll be alerted to changes in your credit score. It’s almost impossible to monitor your credit in real-time (which is what modern credit monitoring services like Aura do). A small monthly fee can give you peace of mind knowing your accounts are being constantly monitored.
- If you’re 70 and older. The FTC claims that seniors report much higher median losses to fraud and are therefore good candidates for credit monitoring.
Note: All three credit bureaus — Equifax, Experian, and TransUnion — offer free credit reports and basic credit monitoring services. However, for premium levels of credit protection, you would want to use a more comprehensive service like Aura to keep your accounts and identity safe. Ultimately, it's up to you to decide whether or not credit monitoring is worth it.
2. Identity theft protection
Like credit monitoring and alerts, identity theft protection warns you of any suspicious activity on your most sensitive personal information — including your credit report. For example, identity theft protection can warn you if a criminal is using your Social Security number (SSN) to apply for government loans or file fraudulent tax returns.
Identity theft protection shields you from those attempting to use your PII to make a purchase, open a credit line, or steal money from your bank account. Aura’s top-rated identity theft protection also includes $1,000,000 in identity theft insurance to cover eligible losses and costs due to identity theft.
When to choose identity theft protection:
- If you want to protect your family against online threats. Identity theft protection can monitor and help protect your children, parents, or grandparents against scams and financial fraud. Learn more about family identity theft protection here.
- If you have numerous online accounts. The average American has more than 100 online accounts [*], yet only 12% use unique passwords for each of them [*]. If you shop, bank, and work online, identity theft protection can help prevent hacking, cyberattacks, and phishing scams.
- If your personal information has already been leaked in a data breach. Billions of pieces of sensitive data are leaked every year from company databases. If your information is on the Dark Web, you could be at risk of identity theft and financial fraud. Use Aura’s free Dark Web scanner to see if your data has been compromised.
3. Purchase protection
Purchase protection — also referred to as purchase assurance or purchase security — refers to services that safeguard your ability to receive repairs, replacements, or reimbursements on certain damaged or stolen items.
Most major credit card issuers — like Visa and American Express — have policies and partnerships for purchase protection included in their coverage benefits.
There are three primary types of purchase protection available to credit card customers:
- Buyer protection plans cover items that have been accidentally damaged or stolen. These plans are often applicable for a limited amount of time post-purchase, and may only apply to purchases that exceed a certain price.
- Return extensions cover items that a cardholder wishes to return but the merchant refuses to take back. The credit card provider can issue a refund for the purchase price so long as the claim is filed within a specific time frame.
- Warranty extensions cover items beyond the terms of the original manufacturer’s warranty. Often extending up to an additional year, these may only kick in once the card holder registers the product.
Though each credit card network is different, most claims for purchase protection can be filed online or by phone within 90 days of purchase.
When to choose purchase protection:
Though purchase protection can prove to be incredibly valuable, most consumers are not aware of their credit card network’s policy to receive repairs, replacements, or even refunds.
If you tend to use your credit cards to make expensive purchases, you’ll want to know if your credit card providers have policies in place that cover accidents. These policies may be useful for those who:
- Buy large electronics or pieces of furniture.
- Purchase items often targeted by thieves, such as cellphones.
- Purchase products without extensive warranties.
- Shop from merchants that don’t accept returns.
💡 Related: The Top 5 Credit Protection Services (How To Choose) →
4. Credit insurance
Credit insurance — also sometimes called payment protection insurance, credit card insurance, creditor’s insurance, or credit protection insurance — refers to protection for credit card or loan payments in the event that you’re unable to make payments due to an unexpected financial or personal setback, like job loss.
This type of insurance can help if you lose your job, become disabled, or face another unforeseen circumstance that leaves you unable to make your monthly payments.
Insurance coverage can suspend your monthly payments briefly, as long as you can document why you’re eligible for these exclusions.
For instance, it’s common to receive a written note from your doctor that verifies a new disability to support your inability to make minimum payments. Likewise, proof of recent unemployment may serve as documentation to pause credit card payments.
Credit insurance is often offered as a complementary or paid addition to your credit card coverage benefits. However, credit insurance can also be applied to other lines of credit, such as personal loans or mortgages.
When to choose credit insurance:
- If you’re at a high risk of health issues or losing your job. Credit insurance can help borrowers maintain a solid credit history and keep creditors away during stressful life events. For example, if you experience involuntary unemployment, have suffered a disability that leaves you unable to work, or are undergoing a divorce or separation.
- If you’re willing to pay to protect your credit. In many instances, there are fees associated with credit insurance coverage — usually billed at an amount based off of your loan or credit card balance. Depending on your lender, there’s also a chance that your outstanding balance can accrue interest. This means the costs can add up quickly if you carry a large balance. Ultimately, it’s up to you to decide whether credit insurance is worthwhile or could potentially diminish your savings.
Is Credit Protection Worth It? Pros and Cons
Credit protection can protect your financial health in the face of fraud, identity theft, or stressful life events. But, like most insurance policies, you have to weigh the costs and benefits to make sure it’s right for you.
Pros of credit protection
- Through the various types of credit protection, you can receive alerts when suspicious or unusual activity takes place involving your credit.
- You can also stop fraudulent activity before scammers open new accounts or make purchases in your name.
- These services protect you from data breaches. If you are a potential target, your credit protection can serve as a proactive shield.
- Likewise, credit protection can safeguard your assets — whether they’re damaged, stolen, or if you can’t make payments on them.
Cons of credit protection
Despite the numerous benefits of credit protection, there are a few disadvantages. For one, advanced levels of protection may cost you more in monthly or annual fees.
- From credit monitoring to credit insurance, either type of service may tack on costs — and each card must be insured separately.
- Unless you freeze your credit, new accounts can still be opened in your name. Even if you do, a credit freeze isn’t a cure-all. Crafty scammers can still take out home, auto, or life insurance in your name.
- Not all emergency situations or purchase reimbursements may be covered under your particular coverage benefits.
- Similarly, coverage does not offer assistance for long-term financial or personal hardship lasting more than two years.
Final Verdict: Credit Protection Is Just Part Of Your Digital Security Solution
When your financial and personal stability is on the line, you’ll want to have credit protection options in your corner.
To safeguard your identity and assets from fraudulent activity, and to protect your livelihood in the face of the unexpected, consider signing up for Aura.
Aura monitors your credit and financial accounts for signs of fraud and can alert you up to 250x faster than other services. You’ll also get comprehensive digital security tools, award-winning identity theft protection for your entire family, and $1 million coverage for eligible losses due to identity theft.