When you get a credit card, your bank might offer you ways to protect it from ID thieves and life’s hardships — at a cost.
Some of these extra services (credit monitoring and payment protection) have gotten a bad reputation, as they were at the heart of the government’s $210 million fine against Capital One in July 2012. The bank, according to federal watchdogs, had allowed a third-party call center to push these services on consumers who didn’t want them, didn’t understand them or couldn’t even use them.
So how should you respond when your card issuer tries to sell you on extra services? Here’s a closer look at some of the most common credit card add-ons — and how to decide if they’re right for you or a waste of money.
ID theft protection/credit monitoring
These services promise to keep an eye on your credit and alert you to any suspicious account activity.
Before you purchase this kind of protection — which can run at least $150 a year — know that you already have some free fraud protections under the law, says Nikki Junker, victim adviser with Identity Theft Resource Center. For instance, if someone does steal your card and goes shopping, you are liable for a maximum of $50 under the Fair Credit Billing Act. Credit monitoring protection also often advertises features such as free 24-hour access to your credit report and score and a hotline for advice. But do you really need that much access? Not in most cases, says Howard Dvorkin, founder of Consolidated Credit Counseling Services in Ft. Lauderdale, Fla.
Ask these key questions before you sign up, Junker says:
- What exactly will be monitored? Will the service provider be looking for your information to pop up on rogue websites, or just looking for suspicious activity on your credit report?
- If your information is stolen, will the service provider walk you through the process of getting your credit cleaned up?
- Is there insurance involved in case you have financial loss from fraud? If so, how much? American Express, for instance, offers up to $1 million in insurance as part of its $15-a-month protection package. Citi, meanwhile, offers $25,000 under its $13 monthly plan.
When it’s worth it: Those who may benefit most from credit monitoring and identity theft protection are those who have already been victims of ID theft and are willing to pay for extra peace of mind, says Dvorkin.
“If you’ve already been a victim, the people may have your Social Security number. In today’s society, if you know someone’s Social Security number, their address, their name and maybe their date of birth, you own that person,” Dvorkin says.
Free alternatives: You can contact the three credit bureaus — Equifax, Experian and TransUnion and place fraud alerts on your credit file. That way, creditors are required to check with you every time there’s a request for credit in your name. However, the alerts last only 90 days unless you have a police report that says you’ve been a victim of ID theft. In that case, the alerts are automatically in place for seven years.
Also, instead of paying for 24-hour access to your credit report, check it for free once a year (once for each of the three credit bureaus) at AnnualCreditReport.com and keep close tabs on your bank accounts online.
Payment protection can suspend, cancel or cover monthly credit card payments for a specified period if you lose your job, become seriously sick or are waylaid by a natural disaster. But consumers should know they may have to do extensive paperwork each month they want to use the service, says Dorothy Barrick, group manager and financial counselor for GreenPath Debt Solutions in Troy, Mich.
If you’re sick, that can mean a doctor’s approval and a co-pay each time you need to document your inability to pay your credit card bill, Barrick says. While she says such services can be a good idea to cover a mortgage or a car payment, it’s not generally worth it for a credit card payment.
The charge for the service is typically about 90 cents for every $100 of the new balance on your credit card statement. If you owe $5,000, the service would cost $45 a month. You are not eligible if you’re unemployed or disabled at the time you buy the protection, and you may not be eligible if you are a seasonal or part-time worker, self-employed or have certain black marks on your credit. Each company has its own restrictions and exclusions.
Also keep in mind that protection may take time to kick in after an event such as a layoff, says Thomas Fox, outreach director at Cambridge Credit Counseling in Agawam, Mass. Each bank is different, so do the research, he says.
“Some of the protections may not take effect until six months or longer after you’ve been terminated,” Fox says.
When it’s worth it: If you can see a job loss coming several months away, you might find credit card payment protection a good bet. Some banks offer substantial relief. Bank of America’s plan, for instance, offers to cancel up to two times your minimum monthly payment for up to 18 months in the case of involuntary job loss.
Free alternative: Sock away the amount you would have paid for payment protection in an interest-earning account. By the time you need it, you’ll have something to pay your credit card company. If you don’t need it, great, Dvorkin says — you’ve started to build a savings account.
If you lose your wallet or purse, this service will cancel your cards and get replacements sent with a single phone call.
This is largely unnecessary for anyone who doesn’t travel frequently for business, Fox says.
When it’s worth it: If you do travel frequently, look for a provider that will send you a cash advance while you await replacement cards, Fox says. Among them are Discover, which will give you up to a $1,000 cash advance and Citi’s Benefit Builder, which will send you a $500 cash advance. American Express offers a version that costs $40 a year that, along with sending you replacement credit cards, can fax a copy of your passport to the nearest embassy, contact your relatives and even send you a replacement driver’s license if you live in certain states.
Free alternative: A better solution, Barrick says, is to keep your own records and make a copy of everything in your wallet — passport, driver’s license and cards. Keep one copy with you and give one to a trusted relative or friend. You can report lost cards to credit card companies at any hour, and they will have departments dedicated to helping you, she notes.
Following these travel tips, Barrick says, can offer extra protection:
- Never carry any card that lists your Social Security number.
- Write down the “lost or stolen card” phone number on the back of the card and keep that list separate from your wallet.
- Carry no more than two credit cards.
- Lock the copies you made of your cards in a hotel or cruise ship safe.
Helpful, or deceptive?
Any of these services may be useful to cardholders if they know exactly what they’re getting into and decide that peace of mind is worth the cost. They only become problematic when consumers don’t understand what they’re buying or don’t realize they’ve signed up for something.
That’s why Capital One was punished.
That bank was the first to be fined, but is unlikely the last. CFPB director Richard Cordray told reporters that he anticipated actions against other banks over similar tactics but declined to name names.
“We know these deceptive tactics are not unique to a single institution, Cordray said. “… We expect announcements about other institutions as our ongoing work continues to unfold.”