You see them advertised all the time. “Get Your Free Credit Score Online Today!” It sounds great, but is the information you’re getting accurate? The simple answer is no, but that doesn’t mean they are totally worthless.
Your Free Credit Score Online – It’s not All It’s Cracked Up to Be
While the advertisements might tell you that the free credit scores they provide you are the same as the credit scores that lenders use to determine whether or not to approve you for credit or a loan, they actually aren’t.
Lenders use proprietary formulas to determine credit scores, so those are not available to the free credit score online crowd. In fact, even you don’t get to know how they came to determine your credit score.
Banks and other lenders pick and choose data that they feel will give them the best peak into your credit worthiness. This data is different from lender to lender. Some might be more concerned with work history while others might put greater weight on how much outstanding debt you currently have.
Lenders also use what is known as a generic credit score. One you have most likely heard of before is your FICO score. A FICO score is available for any lender to purchase. Also, the data that is used to determine your FICO score is based on the whole population.
On the other hand, the custom credit score lenders use may only use their client base to help determine your credit score instead of a larger data pool like the FICO score.
In the end, most lenders use both their custom scores and your FICO score to determine whether or not to approve your credit application.
Free Credit Score Online – What They are Good For
Okay, just because the free credit score people fudged the truth a bit, it doesn’t mean the scores you receive from them are worthless. You just need to know how to use it.
First, make sure you have scores from all three credit reporting agencies. This is really important because you want to look at the range of the three scores. As no one score they provide you is completely accurate, so one by itself doesn’t mean too much.
However, when you take all three together, it gives you a good idea of the range your credit score is actually in.
So, let’s say your three credit scores are 750, 730, and 775. You want to pick the middle one and go with that. This will give you a decent idea of where you are in general. This is important to know because you want to have an idea of your credit score before you apply for a loan or any type of credit, so you can be in a stronger position to negotiate interest rates and such.
It’s also important to know that even if you paid a service to get your credit score, you still won’t receive the same one that lenders use, so if you want to have a pretty good idea, go ahead and stick with the free ones.
The bottom line is this. Your credit score is important. With a good credit score, you can save money on interest rates, car insurance, and all sorts of things. That means you need to have a feel for yours, but try not to stress out that you’re not going to know the exact number because, at the end of the day, there really isn’t anything you can do about it.
Do you worry about your credit score? Go ahead and share your experience by leaving a comment below.
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