What is Credit Monitoring and How Does It Work?

Whether you’re applying for a rental or hoping to secure a mortgage or car loan, your credit score and credit report play a vital role in your financial health. Credit monitoring is a powerful way to stay on top of your credit score so you notice and can address any negative fluctuations as soon as possible. 

Credit monitoring services pull your credit data directly from the national credit bureaus and alert you to any changes in your report. Credit monitoring can be enormously helpful, from identifying fraudulent activity and reporting errors to helping you spot weaknesses in your score. 

Below, we’ll dig into exactly how credit monitoring works and how you can use it to your advantage.  

How Does Credit Monitoring Work?

Credit monitoring services help you track your credit score and alert you to changes in your credit report, good or bad. Examples of changes you may be alerted to include credit score increases or decreases, late or on-time payments being recorded on your credit report, and new credit inquiries (or credit checks) being made on your credit file.

Each time you make or miss a payment, apply for a new credit account, or authorize a hard credit inquiry, this information is sent along to Canada’s credit bureaus, Equifax and TransUnion. These agencies take this information and add it to your credit report. The information and data on your credit report is then compiled and analyzed to determine your overall credit score.

Where a traditional credit report simply compiles all of this information, credit monitoring services typically couple reporting with financial advice. They will point out weaknesses in your credit report, such as a low credit mix, high credit utilization, and more. This makes it easy for you to strategize ways to improve your credit score.    

Why Do I Need to Monitor My Credit?

Monitoring your credit is a simple way to stay on top of changes to your report and maintain your overall financial health. There are three main reasons why credit monitoring is important:

1. You can spot potential identity theft

2. You can track your progress towards future financial goals 

3. You can stay on top of credit report errors or mistakes

Spot identity theft or fraud

First, credit monitoring can help you quickly notice identity theft or fraud attempts. There are countless identity theft scams out there these days, not to mention all the data breaches many large institutions have experienced in recent years. Because of this, identity theft should be fairly top of mind for Canadian consumers.

A credit monitoring service will alert you when a new credit account (such as a credit card, loan, or phone plan) has been opened in your name. If you don’t recognize a new account that’s been opened, you may be the victim of financial identity theft. Credit monitoring tools can help you spot these attempts quickly if anything suspicious suddenly appears on your credit report. 

If you see a new credit card on your credit report that you don’t recognize, you should contact the lender or company that issued the card to find out when and how the account was opened. Credit monitoring tools can help you find early warning signs of fraud and avoid the worst consequences.

Track your financial progress

Taking a proactive approach to your credit health is the best way to set yourself up to meet your future financial goals. Credit monitoring will help you notice changes and fluctuations in your credit score and identify areas where your score could use work. If you’re thinking of applying for a loan, you can use the data from your credit report to help you spruce up your score before submitting your application. 

The higher your credit score, the higher your chances of getting approved for credit cards, loans and mortgages. Individuals with higher credit scores will also have better access to great interest rates and premium financial products. Monitoring your credit score can be a great way to ensure your credit is in tiptop shape. 

Regularly monitoring your credit score can also help you improve your credit score. A study by Borrowell found that Canadians who regularly monitor their credit score see their average score improve by 20 points over 18 months, compared to those who don’t monitor their score. Using credit monitoring tools can help you keep your credit health top-of-mind.

Stay on top of errors or mistakes

Even if you’re meticulous about paying your bills on time, reporting errors from your lenders could lead to inaccuracies on your credit report. Mistakes on your credit report can harm your credit in the long run. With credit monitoring in place, you can easily review your report regularly and report any mistakes before they do significant damage.  

If you spot an error on your credit report, you should dispute it as soon as possible. There are specific steps you can take to dispute your credit report, which include providing appropriate documents to Equifax and TransUnion. Fixing a credit report mistake can help you remove negative information that’s been bringing your credit score down, which could cause a quick boost to your credit score.

What is the Most Effective Approach to Monitoring My Credit?

When it comes to tracking your credit report, you can do so independently or through an automated service. 

To track your credit manually, you will need to check your credit report regularly. You may access your credit report online for free through the national credit bureaus TransUnion and Equifax. Once you have your credit reports in hand, you can review them to spot any changes or mistakes. It’s essential to review the documents from both credit bureaus, as they may have reported information differently, and you need to check for inaccuracies. 

As you can see, this method of credit monitoring is pretty tedious.

An automated credit monitoring service is a more timely and less labor-intensive way to stay on top of changes. Many different credit monitoring services are available these days, some paid and some free. You can access these services through your bank or credit card accounts or independent providers.

Some of these services offer a comprehensive look at your credit report, while others provide a basic overview. The best credit monitoring tools send you alerts when your score changes or a new credit inquiry is made. This way, you can stay on top of any fraud issues or reporting errors. 

With Borrowell, you can view your credit score and your credit report for free at any time. We offer weekly credit score reporting and monitoring, so you are always aware of your current score. Borrowell also provides credit education and personalized financial product recommendations to help you improve your score. 

How Can I Monitor My Credit for Signs of Identity Theft?

Staying regularly informed about the data on your credit report is the best way to spot any potential signs of identity theft. Often, several months may pass after a data breach before the thieves begin using your stolen details, so constant monitoring is essential. Here’s what to watch for:

• Any unfamiliar charges on your credit card statements

• Letters from financial institutions or credit card companies regarding accounts or credit applications that you aren’t familiar with

• Hard credit checks that you didn’t authorize

• New accounts of any kind on your credit reports, such as mobile providers, utility companies, credit cards, or anything else you don’t recognize

• Calls from collections agencies regarding accounts you didn’t open and have no knowledge of

If you come across any signs listed above, it’s important to take action as quickly as possible. If a credit account has been opened in your name, contact the lender or company associated and ask them to provide more details. Once you provide proof that it wasn’t you who authorized the account, the lender can act quickly to freeze the account and contact the credit bureaus. 

Is Credit Monitoring Going to Harm My Credit?

Monitoring your credit with a service like Borrowell does not harm your credit. There are specific differences between hard and soft credit inquiries. Checking and monitoring your credit with Borrowell or a similar service is considered a soft credit inquiry, so it will not affect your credit score negatively.

How to Maximize the Benefits of Credit Monitoring

To make the most of credit monitoring, make a regular habit of reviewing the information in detail. Instead of seeing the alerts and dismissing them, take a more methodical approach. If you find notifications from your credit monitoring service overwhelming, mute them and set a recurring reminder to review the information.

The more frequently you review your credit report, the fewer changes you’ll have to track each time, meaning the task will be more straightforward. If you wait too long, it could be tough to remember what you’ve applied for, and reporting errors could slip through the cracks. We recommend that you should at least check your credit report monthly. If you’re able to review your credit report more regularly, even better. Try to schedule weekly or bi-weekly financial check-ins to stay on top of your accounts.

If you spot mistakes or fraudulent activity, report it immediately. The faster you act, the better your chances at controlling any adverse effects this data might have on your credit health. 

In the same way, if your credit monitoring tool offers suggestions as to how you could improve your credit, make an action plan to do so. Do you have an account with an overdue payment? Make that payment as soon as you can. Do you have high credit utilization? Perhaps you can prioritize paying down your credit cards for a few months. These types of insights take the guesswork out of bettering your financial standing. 

Is Credit Monitoring Secure?

Credit monitoring services are secure. If you choose to do credit monitoring through Equifax or TransUnion, these agencies maintain secure connections with various financial institutions and take your security very seriously. That said, there have been occasional security breaches at these institutions, so just like with any website, it’s wise to use a unique password and keep it in a safe and secure location.

For Borrowell and other credit monitoring services mentioned above, these providers use bank-level security and 256-bit encryption and are considered very safe and secure. If you’re considering using a credit monitoring tool other than the ones we’ve mentioned here, make sure to do your due diligence.

What Credit Monitoring Services Do Not Include

Credit monitoring is a powerful service because it provides you with information you can use to protect or improve your score. Most significantly, credit monitoring helps you guard against identity theft. But, even though this service is helpful, it’s still up to you to resolve any issues that arise.

Credit monitoring cannot: 

• Keep your personal data protected from hackers: You should still make a effort to create strong passwords to protect your accounts. 

• Prevent someone from using your name to apply for credit: While credit monitoring cannot prevent someone from attempting to open credit accounts in your name, it will alert you to any inquiries that appear on your credit report.

• File a fraud report with the authorities on your behalf: If you notice any suspicious data on your account, it’s up to you to file a report with the appropriate authorities. 

• Fix your credit report inaccuracies: To protect your score, you should review your credit report regularly and contest any inaccuracies that you notice. 

Even though credit monitoring doesn’t prevent identity theft, it offers timely detection of fraud, enabling you to minimize the impact of identity theft and protect your credit health. Credit monitoring is an excellent tool to alert you early if these things do happen, and most credit monitoring tools will let you know what the next steps should be if you suspect any wrongdoing with your credit profile.

Start Monitoring Your Credit Today

There are many free services available (such as Borrowell!) that can help you monitor your credit. These services will give you regular updates on your credit score and credit report and notify you if any unusual activity is detected.

With Borrowell, your credit score and Equifax credit report will be updated for you weekly. You’ll also receive notifications if your credit score changes, along with personalized tips on how to increase your credit score based on your financial activity. If changes are made to your credit report, Borrowell will notify you what specifically has changed. If you see any new accounts on your report that you do not recognize, Borrowell will outline the appropriate next steps you need to take to dispute this information with your lenders and the credit bureaus.

No matter what service you end up using, credit monitoring is essential for empowering your financial health. Gain peace of mind with credit monitoring to track your credit score progress, find errors in your credit report, and spot identity theft attempts before they spiral out of control.