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What is Credit Protection?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 26 November 2016
  • Copyright Protected:
    2003-2016
    Conjecture Corporation
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Credit protection is a broad term that is used to cover services that are designed to help maintain credit health for individuals and business entities. As part of the coverage provided by credit protection services, private and commercial customers may enjoy benefits such as tools to prevent identity theft, quickly cancel lost or stolen credit cards, or alert the customer of any new and negative items that appear on a credit report. Essentially, the credit protection seeks to identify and effectively deal with any factor that could have an adverse impact on the credit score of the customer.

Along with protecting the identity and reducing the potential for unauthorized use of credit cards, credit protection is also often included as part of the coverage for most types of loans, including mortgages. The idea behind the inclusion of optional credit protection is to provide the ability to secure a deferment for a given period of time in the event of an unforeseen emergency. For example, the credit protection coverage could make it possible for a homeowner who has recently lost a job or undergone a health crisis that made it impossible to work to defer the monthly mortgage payments for two to three months. This eliminates worry about losing the home while recovering or going through the process of finding a new job.

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It is not unusual for credit card issuers to also include a deferment option for their customers. As with the deferment clause with loans and mortgages, the credit card holder can alert the issuer of recently developed circumstances that make the cardholder eligible for deferment. If the circumstances fall within the terms outlined by the third party underwriter of the credit protection, the temporary deferment will be granted, subject to review at a later date.

Monitoring credit bureau activity is also part of many credit protection plans. Periodic checks of credit reports from leading bureaus make it possible for consumers to be alerted quickly when something unusual shows up on a credit report, such as the opening of a new credit card account that was not opened by the consumer. Monitoring credit report activity can help to identify possible errors that can be corrected easily, as well as make it aware someone else is making unauthorized use of the consumer’s financial information.

One point that many consumers are not aware of is that in many countries around the world, they are not under an obligation to secure credit protection through their creditors. It is possible for consumers to obtain their own credit protection through a third party and thus provide protection for both the debtor and creditor. One school of thought recommends this approach, as this puts the debtor in control of what features are included in the credit protection package, while obtaining the credit protection through a creditor usually involves accepting what is offered.

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