These days it seems like no matter what account you are trying to open, they require a soft pull of your credit report and more than likely a full credit score checkup too. From the usual suspects like a mortgage company or new car loan, to simply opening up a new utilities account.
The lender institutions use this data to determine what type of offer you qualify for, so it is paramount that you know your credit score before you start to apply for any new credit line.
While it is fairly routine these days for consumers to get their free annual credit reports online, seeing your credit score is still a complicated process. It can also be costly if you don’t choose the right service to get your scores from. We want to help you make the right choice and learn from our experience.
Credit Scoring Basics
A credit score is a single number that represents how trustworthy you are from the perspective of someone who would lend you money. If you haven’t proven yourself trustworthy, your credit score is low; on the other hand, if you repeatedly show yourself as credit worthy with a strong history of timely payments, your credit score will be high.
Who calculates your scores?
Credit report bureaus are in the business of collecting financial data on all consumers. They do this by exchanging information with companies that offer financial items, such as loans, credit cards, and so forth. The agencies generally care about three things: the money you’ve borrowed, the amount you owe, and whether you’ve been making your payments. They collect this information from everyone you are indebted to and create a picture of how trustworthy you are in terms of credit. In the United States, the three main companies used in this industry are Experian, Equifax, and TransUnion.
Your Score Is Composed Of Five Key Areas
Payment history – 35%
Credit Utilization (Total Outstanding Balances) – 30%
History (Account Age) – 15%
Recent credit applications – 10%
Account Types– 10%
Getting Access To Your Credit Scores
When you are certain that your credit reports are accurate, you will want to move along to checking your credit scores. Your credit score uses that info on your reports to calculate a number that evaluates your creditworthiness. This is why we urge you to review your credit reports before paying for your scores.
Each of the major credit rating agencies, uses a unique version of the FICO credit scoring model. The specifics of this can vary also by the bank compiling the score but if you are familiar with the FICO system, you have a good idea at what influences your number.
At this point, paying a fee for your credit scores is the only game in town if you want to get them regularly. Credit monitoring is everywhere in the news currently, from the revolving door of companies that are reporting data breaches. In light of this, we highly recommend that you pay for a service to monitor your scores every month.
There are a few situations, in which you will be able to see your scores for free. For example, when you apply for a mortgage. Also, if you are denied credit from any bank, the lender also needs to tell you what credit score they used.
I have used all of the major free credit score services over the past 2 years. From Credit Karma, to Credit Sesame, most of these services are decent enough but they use ‘estimates’ for your actual score and thus it is not your FICO score.
This can cause some problems if you mistake this estimate as your real score. We have heard from several readers that ran into this very situation and did not qualify for the rate they were hoping for.
With that said, I have had much better luck and more realistic results from real credit monitoring services such as Free Credit Click 360. The key is to have a robust program that can help you not only with checking credit reports, but also with disputing errors and cleaning up your reports and also alerting you in real time of any potential dangers.
For 2015, many of the combination identity theft program / credit monitoring services are stepping up their offerings. For most, consumers will get a 14 to 30 day free trial to test out the programs.