Are Free Credit Scores Worth The Price?

August 22nd, 2014

Hand putting check markAre Free Credit Scores Worth The Price?

We’ve seen the catchy commercials, and have been told it’s our right to see our credit report once a year. But what does it all mean, and is it useful to us?

In prior posts, we talked about how often your credit score fluctuates and how to improve your score.

But today, we’ll go a little more in depth with what is your credit report and what is your credit score.

Your Annual Free Credit Report

By law, you’re entitled to a free copy of your credit report on file once a year. There are three credit reporting agencies

  1. Equifax
  2. Experian
  3. Transunion

So you’ll actually need to get three credit reports, and they should all be free. There is a clearinghouse at AnnualCreditReport where they help you obtain your full credit report.

They are the official site sanctioned by the three bureaus.

Once you receive your report, look for errors. You will need to do some research about how to fix the errors, so take your time and follow their procedures.

You shouldn’t need to hire anyone to do this for you. Most places that promise to fix your credit score go in and dispute all the negative information. Their hope is that they can reverse some of the old negative information easily since the companies that reported it won’t want to do the research.

You can do that yourself, truth be told, and don’t need to pay anyone to do that.

However, be warned that many credit card companies do have the resources to do the research and rarely reverse negative information if it was true to begin with.

The Credit Report Is Not Your Credit Score

The credit score a very complicated beast. If you see a site offering a free credit score, keep in mind that it’s not going to be the same credit score seen by lenders. What you are getting is an estimate based upon your credit report, and not a true snapshot.

Often, sites are trying to get you to sign up for a monitoring service, and they have a free trial period. If you cancel before the end, you will get a free score.

So you can look into that provided you know when and how you have to cancel if you do not want their continuing service.

Or use the free credit score sites, but know what you’re getting.

From Yahoo Finance on Here’s What You Should Know About Free Credit Scores:

If you want to find out your actual credit score you usually have to pay and endure a barrage of ads for all sorts of different credit monitoring products in the meantime.

That all changed this year when several personal finance tools decided to change the game, offering credit scores to consumers for free. A few of note are Credit and Credit Karma, which all offer free credit scores to people who sign up for their services.

So which site should you choose?

The biggest difference between the scores offered by these sites is which credit reporting agency data they are based on. Credit Sesame offers up the Experian NationalRisk Score, which is based on data collected by Experian only. Similarly, bases its free score on Experian data, offering a VantageScore 3.0 and Experian credit score. CreditKarma offers two scores – your VantageScore credit score and your TransRisk credit score – which are both based on TransUnion data.

Their final recommendation is to focus on which risk category you find yourself in (example: low risk, high risk, excellent, etc.).

If you’re going to be financing a car or a home loan, you should be aware of what your actual score is and identify ways to move up to the next bracket. The better your score and risk category, the lower the interest rates.

But Wait, You Can Get It For Free

San Jose based FICO, the first U.S. credit scoring company,  rolled out a program that allows consumers access to their credit scores for free, as long as their lender is on board.

A few lenders have already signed up and FICO is in talks with many more banks and lenders to offer this program to consumers.

Under FICO’s Score Open Access program, customers are able to see their credit scores as often as their lenders order them from FICO, which could be every month, said Anthony Sprauve, a spokesman for FICO. “We are trying very hard to remove the mystery about the FICO score and the perception that the score is handed down from on high and educate people about their score so they understand the factors that drive the score,” Sprauve said.

Customers can also see the top two factors affecting their score — things like late payments, a short credit history or high balances — and get information to help them better understand their score and what impacts it.

Lenders will determine exactly what format they use to grant customers access. They may send out e-mails or letters or include the score with their credit card or banking statements. They can also provide access through the customer’s online account, Sprauve said.

Currently, Discover Financial Services provides free credit scores on their statements, as well as the FICO Score Meter and educational content to help them better understand what the score means. If you have a DiscoverCard, log in and check your score.

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