How Do Identity Theft Protection Services Work and Are They Worth It?

Identity theft can be an incredibly stressful experience, and it takes years to recover from. 

It’s unfortunately quite common: 39 million Americans were victims in 2020 (that’s over 10% of the population). 

And the effects can be severe. A survey found that 83% of identity theft victims were unable to rent an apartment or find housing due to their identity being stolen. And 84% of identity theft victims reported trouble sleeping due to the stress of the ordeal. 

It pays to be prepared. That means protecting your social security number and other important information, monitoring your credit report, and perhaps using an identity theft protection service. 

But is identity theft protection worth it? This guide explores the pros, cons and costs of these services. 

What is identity theft protection?

Identity theft is the unauthorized use of personal information like a Social Security number, identification numbers and other personally identifiable information. Identity thieves may use this information to take out loans, open credit card accounts or conduct fraud. 

Identity theft protection is a blanket term that refers to a variety of services and strategies meant to protect individuals from identity theft. 

These services can include credit monitoring, identity monitoring, identity recovery services and identity theft insurance. 

How do identity theft protection services work?

These services are designed to help shield individuals from fraud and identity theft and/or to help individuals recover from identity theft. 

The various types of identity theft services operate differently. See below for an overview. 

Types of identity theft protection

There are the four main types of identity theft protection services. 

Credit monitoring

Credit monitoring helps you watch for changes to your credit report. This could include a new account being opened, contact information being changed, etc.

Credit monitoring is the most basic approach to identity theft protection. It’s not preventative, meaning it won’t do anything to stop identity theft from happening. But it’s useful for monitoring so that you can investigate issues and report identity theft ASAP if it happens. 

Cost: There are several free options available, like Credit Sesame or Credit Karma.  

Identity monitoring

Identity monitoring services scan the web and various databases to identify when your personal information is being used. For example, they might scan dark web websites to see if your credit card number is being sold to a criminal or if someone is using your social security number. 

Identity monitoring is somewhat preventative, in that it could give you an early warning sign that information has been compromised. The scope of these services varies significantly, so be sure to research exactly what is and isn’t monitored by a service provider. 

Cost: $5 to $30 per month, depending on the service. 

Identity recovery 

Identity recovery services help victims respond to identity theft. They may help to freeze credit reports, draft letters to creditors and submit information to law enforcement. Identity recovery is not preventative. 

Individuals can conduct these same activities on their own for free, but a service can help save some time. Keep in mind that the Federal Trade Commission (FTC) offers a free recovery plan service for identity theft victims.  

Cost: $15 to $30, or more, per month. Some services offer one-time fee options. 

Identity theft insurance

Identity theft insurance can usually be added on to your homeowner’s insurance or renter’s insurance plan. It helps provide financial reimbursement for some of the costs associated with recovering from identity theft.

This insurance does not reimburse for what was actually stolen. Instead, it helps cover legal fees, notary fees, or other administrative expenses that may be involved with recovering your assets. 

Cost: $25 to $50 per year. 

Is identity theft protection worth it?

Identity theft protection services may be worth paying for if:

• You are at high risk of identity theft (i.e., your information has been compromised)

• You don’t want to freeze your credit report

• You aren’t actively monitoring your credit on your own

Most identity theft “protection” services are strictly for monitoring and responding to identity theft. Most do not actually preventidentity theft.

The only truly effective way to prevent identity theft is to proactively freeze your credit report with each of the three main credit bureaus. 

When your credit is frozen, no new accounts can be opened in your name. If someone attempts to use your Social Security number, the credit pull will fail and they won’t be able to do anything. 

In most cases, freezing your credit is free. You’ll just need to contact the credit bureaus. 

Remember, with frozen credit, you can’t open new accounts either. If you have a need to open an account, you’ll first have to unfreeze your credit. 

How much does identity theft protection cost?

Services range in scope and price, but you can generally expect to pay $7 to $25 per month for identity theft protection. 

Before you pay for any service, check to see if you have any identity theft protection for free. 

Certain banks, credit unions and even employers may offer this as a benefit. Credit card issuers may provide basic monitoring. And organizations like AARP or AAA may also provide some benefits. 

Other ways to protect your identity

With or without a paid service, there are other steps you can take to protect yourself from identity theft: 

• Monitor your credit using your credit card provider’s system or a service like Credit Karma. 

• Use strong passwords to prevent unauthorized access to your accounts.

• Freeze your credit to prevent unauthorized accounts from being opened in your name.

• Beware of phishing scams that attempt to steal your information. See this guide from the FTC for details. 

• Opt-out of credit card offers that come in the mail. You can do this at OptOutPrescreen.com.

• Investigate issues ASAP if you notice anything suspicious. 

• Report identity theft ASAP if your information is compromised. 

Wrapping up

Is identity theft protection worth it? For certain people, yes — but taking manual, free steps is often just as effective. This includes actively monitoring your credit and/or freezing your credit report. 

Protecting your identity is a vital part of protecting your financial security. Paying off debt is another important way to strengthen your finances. 

Do you have credit card debt? Tally† helps qualifying applicants consolidate their credit card balances to a lower interest rate. 

†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.