Tuesday, June 8, 2010

Free Credit Scores?

In answer to a question about websites or other resources that offer free credit score information, as opposed to just free credit reports, a colleague pointed out a Wall Street Journal article, Credit Scores: Can You Get Them Free?

If you are curious about your credit scores, you may have tried one of the plethora of Web sites and services that offer some free credit information, then lure you into paying for your scores, usually as part of a credit-monitoring package.

Consumers are entitled by law to a free credit report— which is simply a record of your borrowing and repayment history — but the numerical scores derived from these reports will cost you, in part because credit-reporting agencies aren't required by law to provide them for free to consumers along with the reports.

Now, a handful of companies are launching services that give consumers at least a glimpse at their credit scores free of charge. The sites— Credit.com Inc., Credit Karma Inc.'s CreditKarma.com and Quizzle.com— also offer a window into the key factors that go into calculating your score, what you can do to improve them and how your credit stacks up against others. Last week, for example, Credit.com launched a free Credit Report Card that shows consumers how they're likely to rate across five credit-scoring models.

So I tried them all out this morning.

My experience with Credit.com was similar to the article writer's. I got A+ in four categories, and a C- in Account Mix, but that's only 10% of my score, so I received an A overall. It doesn't give absolute numbers but it does give ranges, and based on a report I had paid for, the FICO range of 750 to 850 appears correct. I waas mildly annoyed that to get my actual score I was requested to "upgrade" my account for "just $14.95 per month."

CreditKarma.com gave me a slightly lower score, in large part because, of the seven criteria, I got 3 A's 2 B's (for 99.00% on-time payments, and 2 hard credit inquiries), and 2 N/A. Since they apparently have no information on my monthly income, they can't calculate my debt-to-income ratio. This site had some interesting statistics about credit here. I "have a score better than 167 million people," FWIW.

It took me a while to get to the end of Quizzle.com, and it wasn't for lack of effort. Earlier, I'd get to a certain point and it'd claim I was leaving out some unstated information. So I tried it later, and I got tripped up by one of the verification questions - "How much is our monthly mortgage?" - and I must have picked the wrong range (hey, it comes out automatically out of the bank account; it's not as though I write a check.) BUT, you can then call the 800 number, give them additional information, and then get into the system. These results I also found accurate, AND, as the story reports, "One thing Quizzle.com offers that the others don't is a free credit report — and the ability to dispute errors on your Experian credit report on the site."

As the credit.com page made clear:
Payment History is 35% of your score
Debt Usage 30% of your score - keep your debt under control!
Credit Age 15% of your score - "A long credit history shows that you are established."
Account Mix 10% of your score - Balance of credit and loan accounts on your credit report.
Inquiries 10% of your score - "Applying for new credit conservatively is helping to boost your score."

More interesting info:

If your revolving utilization stays under 10% you'll continue to earn almost all of the credit score points available in this category. As that percentage goes higher, your score will go lower. It's a common myth that you only need to keep your revolving utilization 50%. That's absolutely incorrect. 50% is better than 60% but not as good as 40%.

There's another common myth that could hurt you in this category: some people recommend that you should close your credit card accounts if you are not using them. However, closing accounts can cause your utilization rate to go up and your credit score to go down. If you have an old account you don't want, you may want to cut up the card but not close the account. Cutting up the card will prevent it from being used fraudulently but will leave you with the unused credit limit for your credit score.

This is the best description I've read on this. Closing old-line credit cards of long tenure could LOWER your score.

There are a few different ways you can maintain a low revolving utilization rate. Keeping credit card balances low, increasing your credit limits or opening new credit card accounts for extra borrowing power could all work. However, the safest option is to maintain low balances on the credit cards that you are currently using. Opening new accounts or requesting credit limit increases could have a negative impact on your credit score.

No comments: