Free Credit Scores Are Not Problem-Free

Your credit report vs. your credit score

In difficult economic times and with the credit market getting tighter and tighter, it is important to manage your credit and finances very carefully. One of the best ways to do this is to keep track of your credit rating.

A key component of your credit rating is your credit score. You can get your free credit scores from many companies on line. You have to be careful when dealing with some companies because there is a difference between your credit report and your credit score or scores.

Your credit report. The credit report lists your creditors, payment history, status of your loans, and any derogatory reports from the companies who gave you credit. This report does not contain any scoring. You can obtain one free credit report per year from the federal government.

Your credit score. Your credit scores are completely different. The scores are calculated by reporting agencies based on your credit report. These scores are available to any company you apply to for credit. When deciding where to get your credit information, read closely to see whether the company is offering a free credit report, a free credit score, or all three credit scores for free.

Get all three, but probably not for free

Another consideration regarding free credit scores is that your overall score is a combination of scores from the three major credit bureaus: Experian, Trans Union, and Equifax. Most lenders look at all three scores to come up with a composite of your overall credit-worthiness. Many sites will offer a free credit score, but not all three credit scores. Many times you will be given one score, but have to pay for the other two. These sites may pressure you to buy your other two scores by emphasizing that bad information could appear on one credit report and not on others. Slick marketing can make your free credit report actually quite expensive.

Monitoring can be expensive: Buy only what you need

Another tactic that marketers use in the free credit-reports game is to emphasize that information on your credit report can change at any time. They use this strategy to sell monthly memberships that monitor changes in your score. The problem is that most people’s scores do not change all that quickly. Only very financially active people need constant updates or even monthly ones. The average consumer would be fine checking once or twice a year.
Although it is important to take control of your credit, the marketing technique is to promote paranoia. People feel that they leave themselves vulnerable to erroneous derogatory credit items if they aren’t constantly checking. In truth, mistakes are made by the credit bureaus, but they are relatively rare.

One piece isn’t the whole pie

The companies offering free credit reports also tend to oversimplify the credit system. The score that you see for each bureau isn’t all that your credit history can say about you. Many industries, such as mortgage lenders, weigh the information pertaining to how well you pay your rent in relation to the rest of your credit history. This score is different from the general score you might see. A complex lender-calculation like this could be the reason you are declined for a loan even though your overall score is okay.