Everything you Need to Know About Credit Monitoring

6 min read • Published 16 November 2022
Written by Prateek Agrawal
Discover the importance and benefits of credit monitoring!

To maintain financial discipline and mitigate the risks of potentially fraudulent activities, thoroughly monitoring an individual’s credit history is essential. This way, an effective screening process remains in place to protect one’s personal financial information in case of widespread data infringement. 

What is Credit Monitoring?  

Credit monitoring is a service that tracks an individual’s financial behaviour. This includes activities such as applying for a new loan, a lump sum transaction or opting for new credit cards. 

Consequently, if there is a significant change in a person’s credit history, the lending institutions are notified about the scope of a probable deception. Therefore, if a borrower misplaces a credit card, they can be intimated about any attempt of identity theft.  

Credit monitoring also tracks the evolution of borrowers’ creditworthiness. Subsequently, based on their credit reports, people can make financial plans that help meet their long-term economic objectives.

Importance of Credit Monitoring 

Routine credit monitoring can have multidimensional benefits for a borrower. Some of these include

  • Protection against scams

If an individual’s credit card gets stolen, they will get an update on its misuse and can take subsequent steps to freeze the card. This helps in preventing unauthorised purchases from e-commerce services, or fraudulent activities if possible.  

Furthermore, if your information is obtained illegally via phishing, it might take a long time to notice the irregularities.  As a result, your credit score can go through detrimental effects. On the other hand, with adequate credit monitoring tools, you will remain up-to-date with the pattern of your transactional behaviour. Therefore, any unethical usage of your confidential data gets easily detected. 

  • Finance control assistance

As these services can provide a comprehensive overview of a person’s spending habits, one can assess the data to understand how certain transactions impact their credit score. This way, there is a scope for a borrower to re-evaluate crucial monetary decisions like investing a hefty amount in a particular asset class.  

Moreover, this all-inclusive blueprint of your credit health can offer you a better understanding of the measures necessary to meet particular personal prospects. For instance, if you plan to opt for a personal loan or home loan, a lender will refer to your credit score before sanctioning the fund disbursal. So, you have a prolonged period at your disposal to exercise the practices required to improve your CIBIL score to reach the eligibility criteria for the loan.

Benefits of Credit Monitoring Services

The finest credit monitoring tools provide adequate assistance to the borrower to ensure comprehensive credit management. For instance, these tools can use the available data regarding the market’s mood to conduct the asset quality measurement of a borrower’s account. Therefore, depending on your risk tolerance capacities, you can consider diversifying your portfolio.

Additionally, as credit monitoring can offer potential borrowers an in-depth notion of their present fiscal predicaments, they can leverage these data to secure terms of credit beneficial for them. 

Moreover, an individual receives notification regarding any recurring hard inquiries about their account in a short span of time. Other than that, alteration of significant data records like name and address change in the credit file or these services even flag bankruptcy declaration. You will also be able to know if your classified details have been made public on the dark web. Consequently, it is easier to take necessary legal steps without delay. 

How Credit Monitoring Affects Credit Scores? 

Credit monitoring is a crucial tool to navigate financial activities that can improve one’s credit score. It can prevent fraudsters from using your credit and suggest the due course of action to reduce overspending.  

However, contrary to the popular misconception, checking the credit score has no negative impact on a person’s credit score. If you check your credit score to have a better understanding of your economic standing, then it is a soft pull. Such soft inquiries have zero effect on an individual’s credit score.

Who Needs Credit Services the Most?

Credit monitoring can be a highly effective tool for every borrower to maintain a stable budgetary rigour. However, these services are highly beneficial to a particular set of individuals.  

For one, senior citizens can utilise these facilities to safeguard their savings and investments. Such elderly individuals may struggle with the modern state-of-the-art financial technologies in place. So, they are likely to make errors during transaction procedures. Additionally, there is a higher risk of them becoming victims of grifters. These credit monitoring services, alternatively, can be highly effective in mitigating the scope of such exploitative activities.  

Similarly, young adults can also benefit significantly from these services. According to available data, individuals aged 30-39 years can succumb to online fraud amid their overexposure to social media and other software. So, with credit monitoring tools, they can lock and unlock their credit file at a moment’s notice. 

Limitations of Credit Monitoring Services

One must be mindful that there are some stringent parameters of a credit monitoring service’s effectiveness. For instance, some notable limitations of these tools are: 

  • The inability to notify an individual about cash withdrawals from their accounts
  • These services cannot hotlist your credit card on their own
  • These tools cannot prevent imposters from opening the fraudulent accounts
  • Credit monitoring services do not report fraud. These can only highlight any indications of a possible scam
  • These services cannot stop data breaches conducted by hackers
  • Credit monitoring services will not make any amendments if there are any errors present in your credit report
  • These services do not prevent credit card skimming

Final Word

Credit monitoring is a pivotal service capable of alerting individuals about their financial habits of overspending and flagging indicators of potential fraudulent activities. However, these services can only alert a person about the possibility of such scams and help prevent them. 

Frequently Asked Questions

What role does credit monitoring play in updating your CIBIL score? 

CIBIL records any payment against the loan or advance taken against your name.  Based on these payment records, your credit score is updated. 

What are the factors that can improve the CIBIL score of an individual?

The crucial factors impacting a customer’s credit score include:
> Repaying the due amounts on time
> Keeping a low credit utilisation ratio,
> Prolonged credit history, etc

Was this helpful?

Prateek Agrawal

Investment Principal
Prateek is an investment professional with a demonstrated history of working in Debt Capital Markets and wholesale funding to the Corporates. He has more than 9 years of experience in Treasury and Wholesale lending to more than 50 Institutions across India. He is currently working as an Investments Principal at Wint Wealth.

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