. . . and Why You Don’t Need Them
If you’ve got a credit card, chances are good that your credit card company has tried to sell you some other credit-related service. At first glance, some of these offers sound kind of good – especially if you’re struggling with a high balance or dealing with credit score issues. After all, who doesn’t want a better credit score or a safety net to protect against theft, job loss, or other disasters?
The truth is, the extra “services” offered by your credit card company (and some third parties) are mostly unnecessary. At best, you’re paying your lender for a service that you can get for free anyway. At worst, you’re actually paying a monthly fee to keep yourself in debt.
Here’s a list of some common credit card services – and a few good reasons to go without them:
Unnecessary Service 1: Credit score monitoring
Some credit card companies offer you round-the-clock access to your credit score (for a fee, of course). Of course, it’s always good to keep an eye on your credit – but paying your credit card company for 24/7 access is taking things a little bit too far.
Everyone is entitled to one free credit report every year from the three major credit reporting bureaus (Equifax, Experian, and TransUnion). Unfortunately, these free reports don’t actually tell you your score – they only show you what’s on the report. To see your credit score, you have to pay an extra fee that varies from company to company. The thing is, though, you don’t really need to monitor your credit score. What you need to monitor is your credit report. Since you do get a free report from each of the big three reporting agencies, I suggest ordering one report every four months or so. You won’t get a credit score, but you will be able to see any mistakes or items that need to be corrected in order to keep your credit score from dropping.
Unnecessary Service 2: Identity theft protection
Many credit card companies offer some sort of coverage or protection against identity theft. Although the specifics vary from card to card, most of them work something like this: You pay your credit card company an extra $5 a month, and if your credit card gets stolen, you won’t be held responsible for purchases made with your stolen card . . . sounds great, right?
If you have a credit card, you already have identity theft protection. It’s called the Truth in Lending Act, and it’s been around since 1968. In a nutshell, the Truth in Lending Act says that if someone steals your credit card number and goes on a shopping spree, you’re only liable for $50 in bogus charges (as long as you report the lost/stolen card right away). Instead of paying your credit card company to protect you against ID theft, invest in a paper shredder to make sure your personal information stays, well, personal.
Unnecessary Service 3: Credit score repair services
You’ve probably heard about companies that claim to be able to “fix” your credit score. Don’t get me wrong: Your credit score is important, and it’s always a good idea to improve it – but credit-repair companies tend to make your credit score sound like a big mystery that only be solved by a trained expert.
There’s nothing mysterious about your credit score. In fact, it’s pretty straightforward. Your score is determined by a combination of factors, such as your payment history, how much you owe, and what types of credit you use. If you want a better credit score, it helps to pay on time, to carry a low balance, and to avoid opening new credit cards – there’s no secret weapon or shortcut, and you don’t need to pay a third party to help you do these things.
Unnecessary Service 4: Missed Payment Insurance
This is another of those services that sounds really great until you think about it for a while: In exchange for a monthly fee of $5 for every $100 on your outstanding credit card balance, you have the option to suspend your payments for two years. This service is usually promoted as a way to guard your credit score against unforeseen events, like getting sick or losing your job.
Like I said, this offer sounds great at first. Who wants to worry about credit card payments after getting laid off, right?
Instead of paying to avoid penalties later, you should be focusing on paying down your credit card debt. If you’re’ not carrying a balance, there’s no need to worry about making payments. Rather than enrolling in some sort of insurance plan, work on paying off your credit cards and bulking up your emergency fund.
Unnecessary Service 5: (Most) Balance Transfer Offers
Before I get into detail about this one I’d like to point out that in some cases, balance transfers make sense. Balance transfer offers usually come with an enticing introductory offer, like zero percent interest for a period of anywhere from three months to a year – and there’s usually some sort of balance transfer fee involved. If you can pay off your entire outstanding balance during the introductory period, you can come out ahead.
But, in many cases, especially if you’ve got a large balance, once that introductory period is over you’re back to square one. At that point, you’re stuck with a big balance at a high APR – just like before. You can either keep making payments or look for another balance transfer offer (keeping in mind, of course, that every time you apply for a credit card, you’re putting a dent in your credit score). This is how a lot of people get stuck on a never-ending merry-go-round of balance transfers.