6 Credit Card Services You Don’t (Usually) Need

By Jay Cross. Last updated 16 January 2012. 6 comments

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Everyone who has opened up a credit card in the last five years has been pitched on various supplementary “services” from the company in question. The offers sound enticing and even logical at times, but are they really justified from a hard dollars-and-cents standpoint?

Everyone’s financial situation is different, but generally speaking, the answer is NO.

Here are six credit card services that you (usually) do not need. (See also: Best Credit Card Perks)

1. Identity Theft Coverage

This is typically framed as a way to avoid liability for fraudulent charges made after your credit card is stolen. It sounds appealing, but many consumers fail to realize they are essentially ALREADY covered from this by 1968’s Truth in Lending Act. This law states that if you report the stolen card immediately, your maximum liability for fraudulent charges is $50. As such, it makes zero sense to pay $5 per month (or anything) when, even in the worst case scenario, you are only out $50.

While some identity theft plans offer coverage for more extreme circumstances (such as losing other cards or your Social Security number), you would generally be better served investing in a paper shredder and monitoring your credit report than paying the fees your credit card company would charge.

2. Missed Payment Insurance

This was actually offered to me a few days ago while activating a credit card. The salesperson gleefully exclaimed how I could “put my payments on hold for up to two years” in case I lost my job or ran out of money. The cost? Something like $5 per every $100 on my outstanding balance. It actually sounded moderately appealing at first, until I paused and thought about it.

“Why would I ever be unemployed or unable to make credit card payments for two years?”

For one thing, I (like many credit card holders) rarely carry balances month-to-month. It might make sense if you carry huge balances, but even in that case, you probably ought to ask WHY you’re carrying those balances. Furthermore, a modest savings account would seemingly provide all the missed payment insurance you would need in a cash crunch.

3. Credit Score Tracking

Given the overall importance of your credit score, this is definitely a number worth knowing. Do you really need 24/7 access to it, as many credit card companies now offer in exchange for additional fees? It’s debatable (and there are definitely circumstances where it COULD make sense), but probably not.

Although credit scores do change dynamically to reflect your most up-to-date activity, obsessively monitoring it every single day is unlikely to reveal anything of importance. You would be much better off simply getting your free yearly credit score and report from AnnualCreditReport.com in the beginning of the year, and then perhaps paying one of the major credit bureaus (Experian, Equifax, and Trans-Union) for second and third peeks later on. Experian, for instance, offers $1 access to your score in connection with an easy-to-cancel trial.

What type of credit card are you interested in?
How much do you spend per month?
Do you carry a balance?

4. Debt Consolidation

Typically offered by third-party organizations rather than credit card companies themselves, debt consolidation is far from the silver bullet its supporters make it out to be. Consolidating debt lowers your immediate monthly payment (which we always hear), but it also lengthens the amount of time you stay in debt and enlarges the total amount that you pay (which we almost never hear.)

Think about it — what creditor would voluntarily rewrite debt if it only benefited the borrower? No one would. Taking this into account, you should realize that debt consolidation doesn’t lower your debt. It simply moves it around and makes it (temporarily) more comfortable. Approach debt consolidation with caution.

5. Credit Score Repair

A number of credit card companies (sensing that many consumers have low credit scores) are beginning to offer credit score repair services. The offer is appealing to people who don’t understand credit and thus believe “the experts” can push a few buttons to raise their score overnight.

Yet in truth, credit scores are no mystery. As myFICO explains, your credit score is comprised of five things and five things only:

  • Payment history (35%)
  • Amounts owed (30%)
  • Length of credit history (15%)
  • New credit (10%)
  • Types of credit used (10%)

Repair services don’t have any shortcuts or special tricks. All they can do are the same common-sense things you could do yourself by consulting the list above (paying your bills on time, repaying outstanding balances, ceasing to apply for new credit for a while, etc.)

6. Balance Transfers

Before someone rushes to say how insane I am for calling balance transfers unnecessary, let me state that I do find them worthwhile sometimes. More often than not, however, they amount to little more than a band-aid on a bullet wound.

Because those highly sought 0% “teaser periods” often last just 3-6 months (and most borrowers will not pay off their entire balance that quickly), credit card holders might be left to either stick with the astronomical new APR or “rate-chase” by balance transferring to a new 0% card. This can actually compound your credit problems because constantly applying for new credit reflects poorly on your score.

If you can pay off a balance IN FULL during the teaser period, it can be a smart move. If not, it’s likely a waste of time and money.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.

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Guest's picture
Guest

Beware! One of my cards frequently offers balance transfers, and even includes checks with my bill to make it oh so easy. The fine print includes a healthy fee for using them!

Guest's picture

This information would be so useful for those young college students these companies love to go after. Bypass the identity theft coverage or missed payment insurance and put that extra money towards getting rid of your balance!!

Guest's picture

I would just be careful in general. I recently read come credit card horror stories and was very surprised of the things that go on. Your first tip is right on. Many people think they need this coverage. However, do a little research and you will find out that the government protects you...way better than some random credit card company that wants your money.

Guest's picture

I think credit card companies should clarify the difference between credit related crimes and today's more invasive id theft crimes. When most people think of identity theft they think of someone stealing their credit card info or using their personal information to establish new credit cards. We have to change the way that we think about identity theft and realize that it's not just a credit-related crime. Technology advances have produced high-tech devices that steal your data without your knowledge -- from handheld skimmers to attached gas pump and ATM skimmers, to RFID readers and malware apps. Identity thieves can target individuals without their knowledge and steal unemployment benefits, tax returns, medical insurance, Social Security numbers and clean out bank accounts along with a variety of other ID theft crimes that are not credit related. Today it's important to understand that it's critical to monitor your whole identity which involves more than just keeping track of your credit.

Guest's picture

I agree that the credit repair companies are usually a waste of time. With some basic knowledge of how your credit scores are calculated and why your credit score should be protected, I think most people can manage this themselves. And the consolidations could also be done DIY if you had enough capacity in other credit areas.

Guest's picture
Derrick

I think its a bit messed up how these creditors charge monthly fees for these types of insurance programs. Take my advice, and stay away from them. Each creditor will try and charge some sort of monthly fee, that is NOT necessary. Just pay your minimum payments, and all will be fine. These insurance plans are not needed and only line the pockets of the creditors.