4 Different Types of Credit Protection You May Need
The unexpected happens every day. Learn about different types of credit protection services to safeguard you from unforeseen events and fraudsters.
By Elliot M. Kass | American Express Credit Intel Freelance Contributor
6 Min Read | March 30, 2022 in Credit Score
Credit protection can refer to several different ways of safeguarding your credit and financial assets.
Types of credit protection include credit monitoring, identity theft protection, credit card purchase protection, and credit insurance.
Given the importance of credit in today’s economy, experts suggest most people consider one or more of these options.
What is credit protection—and is it something you need? The answer depends on the type of credit protection you’re concerned about.
People who use the term “credit protection” can mean up to four different but related types of credit protection services:
- Credit monitoring and alerts. These credit protection services track who’s making inquiries about your credit to help you guard against fraudsters and thieves.
- Identity theft protection. This form of credit protection safeguards you from threats like someone borrowing money or filing a phony tax return in your name.
- Purchase protection. Some credit card providers offer this type of credit protection—a type of insurance for items bought with their card.
- Credit insurance. Credit protection also sometimes refers to insurance that helps you cover your debts if you can’t pay for reasons out of your control, like job loss or disability. Mortgage insurance is one type.
Let’s take a closer look at the benefits and value provided by each of these types of credit protection so you can consider whether or not they suit your needs:
Credit monitoring and alerts allow you to keep an eye on your credit score and any requests for your credit report, such as those made by lenders when you apply for a credit card or loan. Given the number of businesses that use your credit score to evaluate different kinds of applications, the experts say keeping tabs on your credit is important for virtually everyone.
Monitoring and alert services like those offered by the three national credit bureaus—Equifax, TransUnion and Experian—provide early warnings of inquiries into your credit history and any changes to your credit score, allowing you to respond accordingly if an inquiry appears amiss.
Credit monitoring can be particularly helpful for people who have lower credit scores and are trying to improve them. It can also provide an alert if someone is fraudulently attempting to open an account in your name. You may be able to find and use basic credit monitoring services for free, but expect to pay a monthly or annual fee for premium levels of this type of credit protection.
Identity theft protection shields you from cyber criminals attempting to use your name and credit history to borrow money, steal from your bank accounts, or make a purchase. Like credit monitoring, these services alert you to activity on your credit report, so there is some overlap between them. But identity theft protection also monitors many other instances where your personal identity information is either altered or used, such as tax filings to the IRS or requests to change your postal address.
In 2020, the FTC received more than 2.1 million fraud reports from consumers, with over $3.3 billion lost to fraud.1 Given the scope of this problem and the numerous difficulties people encounter trying to clear up the confusion that identity theft creates, many credit experts say contracting with a service to monitor your identity is worth the expense.
Purchase protection is another form of credit protection offered by many credit card companies as a benefit of using their card. Under these plans, the card provider acts as your advocate when something you purchased on the card is damaged, unable to be returned or fails to perform as promised. Also known as buyer protection plans, there are three basic kinds:
- Protection for purchases covers merchandise that has been accidentally damaged or stolen. It is typically in force for a limited number of days from the date of purchase and may only apply to purchases when the cost exceeds a certain minimum amount.
- Warranty extensions extend the terms of the original manufacturer’s warranty—typically up to an additional year. This type of coverage often requires the purchaser to register the product in question before it takes effect.
- Return extensions come into play when the cardholder tries to return an item and the merchant refuses to take it back. If this occurs within a certain timeframe—typically within 90 days of purchase—the card issuer will refund the purchase price. There are often limits on the amount that will be refunded and how many refunds the card user may apply for in a given year.
Since you generally don’t have to pay for these protections, experts urge people to take advantage of them.
Credit insurance covers loan or credit card payments in the event that you’re unable to pay due to a financial setback like losing your job or becoming disabled. Also known as payment protection insurance, it is typically offered as an extra service by the issuer of the loan or credit card.
Most of these programs promise to suspend your loan payments for a specified period of time if you can document a hardship that limits your ability to pay—such as having a doctor verify that you’re disabled. However, there may be costs or fees associated with these programs, so it’s important to consider whether the costs are worth it. Alternatively, it may make more sense to use that money toward building an emergency fund that can help you cover your obligations if something goes wrong.
Safeguarding your credit and maintaining a good credit score is important for most people. To help you do this, credit experts recommend using one or more of the various types of credit protection that are available: credit monitoring, identity theft monitoring, purchase protection, and credit insurance.