One of the latest trends in online personal finance is the idea of getting a free credit score. This plays so well because we all know how important our credit score is, but it is still relatively difficult for the average person to get and see their credit score. (Note this is different than getting your free credit REPORT, which you are entitled to each year by law.)
FICO and Real Credit Scores
The big problem with the concept of a real credit score is that there are lots of available credit scores, and none of them are fake scores, per se. After all, anyone can setup some math and calculate a number they call a credit score. The credit bureaus themselves created their own credit score called the Vantage Score. It’s a real score, created by real companies, and sold as a real product. It is also the actual credit score you get from Credit Karma if you use the Credit Karma free credit score service. However, very few lenders, relatively speaking, actually use the VantageScore when making their lending decisions. That doesn’t make it a fake score, just one that probably isn’t what will be used.
When most people say, “real credit score,” they mean a FICO score. Note that I said A FICO score, because there isn’t just one. After all, the point of a FICO score is to help lenders make statistically knowable lending decisions, and defaulting on a car loan is totally different than defaulting on a credit card loan, which is different than a mortgage, and so on. So, there are FICO scores for credit cards, FICO scores for car loans, and so on.
So, even if you are getting an actual FICO score, like the score you get from the myFICO service, it still may not be THE credit score that a particular lender uses when you apply for a loan, apartment, or job.
Where To Get Real Free Credit Scores
While there are numerous online services like Credit Sesame, Quizzle or Credit Check Total that offer free credit scores of various quality as a semi-standalone product, it turns out the best place to get free credit scores for real is from financial companies that you already do business with.
For example, some banks and credit unions will show you your credit score on your statement, or when you log into their website. One of my credit unions has a tab on the online banking page that says “Credit Score.” Click it, and it shows my credit score, the real, actual credit score that my credit union uses to monitor my account and offer me banking products. In other words, if I wanted to get a credit card from my credit union, or open a personal loan, that is the credit score they would check first before deciding whether to proceed. They only update the score once per quarter, but it is a good indicator of what my actual credit score is.
Several credit cards now offer you a free credit score, but again, the devil is in the details. The Capital One Rewards cards offer a free credit score, but if you look closely in the Frequently Asked Questions you’ll see that the credit score Capital One is showing you is a Vantage 3.0 score, not a FICO score. It goes on to say,
And, while Capital One doesn’t use it for making credit decisions, other lenders do.
So, yeah, the free credit score from Capital One isn’t even the credit score that Capital One uses.
Other cards are different. For example, the fine print on the Merrick Card free credit score says, “This is the score we use when making credit decisions.” So, that is very much a “real” score that one of your actual lenders is using. That does not mean that everyone else would use that exact score for other loans or banking, though.
The free credit score from Discover Card is “one of several factors we may use,” so that’s a definite maybe.
In reality the only time you will actually ever get a 100% true, real, free credit score is if a lender you are applying to agrees to show you the result of what they got. They are usually much more willing to do this when you qualify than when you don’t, so if you ever get approved for a loan, ask them what your score was.
How To Use Free Online Credit Scores
Unless you are actively applying for new credit, that actual number isn’t really all that important. What matter is if the number is going up or down. That makes free online credit scores a better tool for credit monitoring than figuring out your actual credit.
For monitoring the direction your credit score is moving, any one of these online services can be useful.
Most often, your score will move up or down based upon your credit utilization. Credit utilization is how much of your total available credit you are using. Less is better. The idea is that if you are using 75% of your total credit, you might be getting in over your head, whereas if you are only using 5% of your total credit, then it probably isn’t that hard for you to make your payments.
If, like many people, you use your credit cards for everyday purchases, but pay the balance off every month, this will especially be true for you. Depending upon which day your card reports your balance, they may report a small balance (if it was right after you paid it off), or a bigger balance (if it’s near the end of the reporting period and you are getting read to make a payment). So, don’t panic about small moves from month to month.
In the end, sound personal finance is always the same. Make all of your payments on time, and avoid paying penalties, fees, or interest as much as possible. Do that, and your credit score will take care of itself, whether you know what the real score is, or not.