What is Credit Protection? What Are the Types?

  • By Greg Brown
  • Feb 27, 2023

credit protection

Protecting one’s financial accounts and assets has become a priority for those who find online access the easiest and most productive way to grow assets. In recent years the level of financial planning, access to banks and financial institutions, and growing investments have been astounding.

Access to credit and personal credit scores has become dangerously comfortable for those who are unaware of the risk. Consumer fraud has skyrocketed; according to the Consumer Sentinel Network maintained by the FTC, 2.8 million fraud reports were submitted in 2021, costing Americans 5.8 billion.

Regardless of the risk, consumers continue to add massive amounts of credit and debt. November 2022, consumer credit rose $27.96 billion and revised upward from $29.12 billion in the previous month. Credit monitoring and protection services have seen incredible growth due to consumer spending.

Credit protection refers to the many laws and services designed to safeguard credit and financial assets. Credit protection insurance covers debt in the event of a catastrophic event such as unemployment or death. Credit protection services are entirely optional to consumer credit accounts such as cards, revolving, or open loans.

Credit Protection

Modern protection programs have become significantly flexible and complex for a wide range of consumers and applications. Credit protection is a single strategy against life’s pitfalls and surprises. Consumers must decide if the benefit of credit protection outweighs its advantages or if they should instead build up a war chest for unexpected circumstances.

A complaint filed with the Consumer Protection Bureau found that Best Buy had been charging a monthly debt protection fee unknown to one of its account holders. The cardholder found that Best Buy had charged them over $5000 for paltry coverage on a card that was rarely used.

Types of Credit Protection

There are generally four types of protection for safeguarding online accounts and assets. Within each category, there are different tiers of protection and services consumers and businesses can take advantage of to protect assets. 

  1. There is no more insidious, predator-driven attack on consumers than identity theft. Stealing a person’s identity to open credit card accounts, steal government benefits, and ruin a person’s life is rising. Identity theft can happen at any age level, with the young and elderly the most vulnerable.

To protect against identity theft, you want to secure your personal information, review financial and credit reports regularly, ad keep an eye on incoming mail and email. This is an easy way for predators to steal identities. You should also always practice good cyber hygiene in terms of authentication and strong, secure, and unique passwords. 

  1. Credit Monitoring has become an effective way to control your credit and assets. Tracking changes in the behavior of a consumer is the essence of credit monitoring. Any changes in creditworthiness and scores are sent to the consumer for action. Credit monitoring services use soft inquiries to track changes in a credit score

Each of the three bureaus can do monitoring; however, consumers will need to interact with each one for monitoring services. It is best to invest in identity theft monitoring services that monitor each of the three bureaus. Many also provide additional features to keep consumers protected.

  1. Credit card purchase protection is a widely used service that applies to purchases made with a credit card. Ideally suited for business, this time-specific protection covers damaged or stolen items for usually 90 to 120 days. 

Purchase protection needs careful consideration before using this service. The protection is suited for large purchases and specific products and can be expensive. Keep in mind there is no unlimited protection. Purchase protection usually carries a per-claim or annual limit, and certain purchases may be excluded. It is important to evaluate carefully whether you really need this type of protection.

  1. Credit insurance can be all-encompassing protection for various debts, including credit cards, loans, and existing obligations. Credit insurance can be a lifesaver if purchased for the right products; There are three types of credit insurance for consumers, these include disability, life, and unemployment. Each is designed to pay off existing debt in a catastrophic event. Each of the three types comes with its features and requirements.

Benefits of Credit Protection

Protecting assets and financial accounts against the ever-present predator is the reality of modern life. Dealing with unforeseen life events such as unemployment, disability, or accident is something no one wants to worry about. Keeping up with obligations is the primary benefit of credit protection. Credit protection helps ease the financial burden and keeps you from going into payment delinquency.

One of the many products available is GAP insurance, which protects your vehicle investment. In the event of an accident, GAP protection pays off the difference between what you owe and the vehicle’s actual value. If your vehicle is declared a total loss, GAP pays the balance. GAP protection can be purchased for various vehicle types, from automobiles and vans to jet skis and personal watercraft. 

credit protection types

Credit protection can keep you from financial disaster if you own a business. Most modern businesses sell their products on credit which is inherently risky. Customers can and will fail to pay their bills unless payment is demanded upfront. They are leaving the business with no product and uncollectable debt. A trade credit insurance policy can help with customer non-payment and improve cash flow. 

Protecting accounts receivable is another tactic businesses have used in uncertain times. Again, this protection covers the business in case customers do not pay their debt. Credit protection designed for business improves customer relationships and the bottom line. 

Final Word

Consumers and businesses have plenty of credit protection policies to help with unexpected life events. The question that comes into play is, “do we need a credit protection policy?” Or does a well-stocked war chest of money do the same thing? We must first understand a fundamental finance tenant: build up one or two cash accounts for unexpected life events. 

Are the hundreds of credit protection policies designed to take your money or provide you with a deep level of protection? Make sure you are investing in the best protection policy for your specific needs.

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