If Credit Freezes Don’t Always Work, What Then?
Did you know that the United States is the most credit fraud-prone country in the world? In fact, since 2020 [*], more than 86% of U.S. consumers have been victims of data breaches, credit fraud, or identity theft.
Despite protections implemented by the Federal Trade Commission (FTC), total reported fraud losses have eclipsed $9.4 billion. And trends show little signs of this slowing down any time soon.[*]
Plus, the dollar amount of attempted fraudulent transactions has skyrocketed by 35% since April 2020.[*] This is due in large part to more consumers adopting contactless payment methods.
Drastic measures, like setting up credit freezes after your identity has been stolen, don’t always work as they seem — something that one woman discovered after scammers were able to apply for auto insurance in her name, despite her credit freeze.
So how can credit protections safeguard your identity?
Understanding Credit Protection
Credit protection refers to the collection of laws, regulations, and services constructed to preserve the credit health of individual consumers and businesses.
These types of consumer protection safeguard entities seeking credit and those who are already debtors, such as credit card account holders. Federal credit protections are regulated by the FTC’s Bureau of Consumer Protection (BCP).
What does credit protection do?
The purpose of credit protection is to secure consumers against financial fraud including any predatory action that can impact their potential to obtain future credit.
In the United States, credit protection aims to shield consumers’ credit scores, the number that represents their creditworthiness and reliability. With a poor credit score comes fewer loan and credit line options, often with much higher interest rates.
Moreover, credit protection is designed to help both individual consumers and financial institutions (such as credit card companies). These regulations work to prevent fraud, deception, and unfair business practices across the marketplace.
Common examples include purchase protection for valuable company investments, or insurance for unexpected, unmanageable personal debts.
Credit protection and your identity
As part of safeguarding financial assets, credit protection also shields a consumer’s personal identity information. Credit protection is the first line of defense against cyber criminals who steal a consumer’s name and credit history to siphon funds.
It also monitors instances in which a consumer’s identity is used for fraudulent tax filings, credit, or loan applications.
4 Types of Credit Protection: A Closer Look
Credit fraud can occur just about anywhere and impact absolutely anyone. For instance, the FTC reported 38,561 cases of identity theft related to auto loans and leases in 2019.[*]
And, 3.1 million pieces of consumer data were compromised in a Toyota and Lexus data breach.[*]
In many cases, the perpetrator, who steals your identity and opens credit cards in your name, may be someone you know, like a family member.
Even children can be victims of credit fraud — and are a whopping 51 times more likely to experience identity theft than adults. To date, identity theft affects 1.25 million children, or 1 out of 50 kids, each year.[*]
At a time when merchants estimate that fraudulent transactions account for more than 25% of annual online sales, it’s never been more important for consumers and businesses alike to adopt credit protections.[*] Here are four primary types of credit protection to consider.
1. Credit monitoring and alerts
Credit monitoring refers to services that track your credit score and any inquiries into your credit report. A credit inquiry is typically made by lenders when you apply for a credit card or loan.
These inquiries can appear on your credit report for up to two years and have negative short-term impacts on your credit score.
Here’s how it works
If you use credit monitoring, you'll get an alert whenever:
- Your credit score changes.
- There’s been an inquiry into your credit history.
- A new account has been opened in your name.
Since everyone from credit card companies to landlords can run inquiries, it’s imperative to receive these alerts.
For instance, you'll get an alert if someone tries to use your information to open a new credit card. In June 2020, two criminals were charged with defrauding nearly $1.3 million after using tens of thousands of stolen credit card numbers.[*]
Moreover, credit monitoring can help you spot unusual purchases — like hundreds of gift cards. That's what happened when two Philadelphia men were convicted in February 2022 for using more than 200,000 stolen credit card numbers.[*] They quickly resold all of the gift cards for cash.
Credit monitoring can alert you about such activity, so you can properly freeze your accounts. All three credit bureaus — Equifax, Experian, and TransUnion — offer free 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.
Choose credit monitoring in these cases:
- For those 70 and older, as the FTC claims that seniors report much higher median fraud losses.
- For those who frequently utilize contactless payment methods with unknown vendors.
- For those who were already victims of identity theft or are at high risk of falling victim.
- For those who cannot make the effort to actively monitor their own credit.
2. Identity theft protection
Identity theft protection refers to the collection of services that safeguard your personally identifiable information (PII) from cybercriminals. PII includes any data that could identify one specific individual or be used to distinguish one customer from another, like:
- Social Security number (SSN)
- Government-issued identification numbers, such as a driver’s license number
- Email address
- Telephone number
- Credit card or debit card numbers
- Credit history
Here’s how it works
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.
Like credit monitoring and alerts, identity theft protection warns you of any suspicious activity on your credit report. It also monitors other possible instances in which your PII could be used or altered. Using stolen identities for fraudulent tax returns or medical care are examples.
Choose identity theft protection in these cases:
Identity thieves are often hiding in plain sight. Among the most common identity theft traps are online shopping scams, prize and sweepstakes giveaways, and job scams.[*]
Even a “safe” looking job application can be a funnel to steal your PII. To err on the side of caution, individuals who may want to consider identity theft protection include:
- Those with numerous active credit accounts — including multiple credit cards, student loans, car loans, and mortgages.
- Those who frequently provide their personal information online (i.e. applying for jobs).
- Those who have young children — children are 51 times more likely to become identity theft victims.
3. Purchase protection
Purchase protection refers to services that safeguard your ability to receive repairs, replacements, or reimbursements on certain damaged or stolen items.
Most major credit card networks, like Visa and American Express, have policies for purchase protection included in their coverage benefits. Purchase protection is often referred to as purchase assurance or purchase security.
Here’s how it works
The purpose of purchase protection is to enable credit card issuers to act as your advocate when a purchase fails to perform as promised, arrives damaged, or can’t be returned.
Though each credit card network is different, most claims for purchase protection can be filed online or by phone within 90 days of purchase.
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.
Choose purchase protection in these cases:
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: Did You Get Scammed On Facebook Marketplace? →
4. Credit insurance
Credit 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.
Also referred to as payment protection insurance, this type of insurance can help if you lose your job, become disabled, or face another unforeseen circumstance that leaves you unable to pay.
Here’s how it works
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.
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.
In many instances, there are fees associated with credit insurance programs. Depending on your lender, there’s also a chance that your outstanding balance can accrue interest.
Ultimately, it’s up to you to decide whether credit insurance is worthwhile or could potentially diminish your savings.
Choose credit insurance in these cases:
Credit insurance can help you maintain a solid credit history and keep creditors away during stressful life events.
Though the coverage periods and associated fees may differ by lender, there is a wide array of life events that may allow for the temporary suspension of your upcoming payments.
Borrowers who may want to consider credit insurance or payment protection insurance include:
- Those who experience involuntary unemployment.
- Those who suffer a disability that leaves them unable to work.
- Those who experience a hospital stay of one or more nights.
- Those who have experienced a recent death in the family.
- Those who are undergoing a divorce or separation.
- Those who recently welcomed a child.
So, Is Credit Protection Worth It?
Credit protection applies to all areas of an individual consumer’s financial standing. Credit protection is also a shield for your personal identity, your evolving credit score, recent purchases, and ongoing payments.
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. And as alluded to earlier in this post, 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.
Don’t Let Scammers Outwit You. Protect Yourself with Aura.
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 will alert you about any fraudulent activity on your account and let you know if any of your personally identifiable information (PII) is being misused. Plus, if the worst should happen, every adult member included in your Aura plan is covered by a $1,000,000 insurance policy for eligible losses.