With the appearance of free credit score tools at bank websites and new online services, it’s finally possible for consumers to get free credit scores. Free credit reports have long been available through AnnualCreditReport.com, but until now, consumer have had to pay to see their credit scores.
Below, we explain how to get a free credit score from a bank or credit card company, or through Credit Karma online. We also explain why it’s so important to look beyond the credit score and dig into the credit report. We point out what to look for in the credit report, and how to fix errors and problems like missed payments and accounts in collections.
Why Monitoring the Credit Score is Crucial
An individual’s credit score is vital to their financial health. Banks use it to judge if someone will pay back borrowed money. Keeping an eye on the credit score is crucial for avoiding unwelcome surprises like going for a home loan and realizing your credit score’s 550 and you’re out of luck. Careful monitoring lets consumers nip those kinds of problems in the bud.
Banks and credit card companies are starting to make free credit scores available to their customers. Also, online services like CreditKarma.com now make free credit scores available to everyone.
Credit Score vs Credit Report
First let’s look at the difference between a credit score and a credit report. It’s unclear to many that credit scores and credit reports are two distinct things.
A credit report is a multi-page report listing all the things that have happened to a person’s credit in the past several years, including a rundown of all credit accounts, missed payments, accounts in collection, addresses the person has lived at and more. A credit report is also sometimes called a credit history.
A credit score is a three-digit number created from the information in the credit report. It’s a measure of a consumer’s credit health, at a glance, and banks use it to decide whether to lend money to someone.
Free Credit Score
A person’s credit score isn’t part of their credit report. By law, the three credit reporting bureaus have to let consumers look at their credit reports for free, once per year. There is no such law giving consumers the right to see their credit scores free. Traditionally, the reporting bureaus have charged consumers for each look at a credit score.
Free Credit Score from Your Bank
Recently, many credit card companies like CapitalOne and Discover have started to provide free credit scores to their customers. A good way to find out if your bank or credit card company provides free credit scores is to visit their website and type “free credit score” into their search box.
Free Credit Score from CreditKarma.com
CreditKarma.com offers free credit scores from Equifax and TransUnion. Users just need to create an account and provide the last four digits of their social security number. The site also has some neat add-on features, like the ability to drill down into a credit score and see the factors that created it.
How can Credit Karma afford to distribute free credit scores? By selling ad space. Consumers who see their free credit scores there also see ads for credit cards.
Free Credit Report
Consumers can check credit reports for free, one time per year, by Federal law. Credit reports are compiled by three private agencies — Experian, Equifax, and TransUnion. It’s important to look beyond free credit scores and into credit reports. That’s because credit scores are created from information in each consumer’s credit report.
AnnualCreditReport.com is the only website approved by the US Government to distribute free credit reports from all three bureaus. People can view their free credit reports by visiting the website and filling out the online form there.
Since there are three credit reporting bureaus, a good strategy is to check a free credit report from one bureau every four months. For example, a consumer might get an Equifax free credit report in January, an Experian free credit report in May, and a TransUnion free credit report in September. This way, she’s never more than four months away from an assessment of her credit health.
What’s in Your Free Credit Report
A credit report includes personal facts like a person’s name and social security number. It also lists past and current addresses and phone numbers, and any negative information about the person’s finances. These negative items might include:
- Late Credit Card Payments
- Late Mortgage Payments
- Late Car Loan Payments
- Whether You’ve Been Reported to Collection Agencies
- Negative Rental History (If Reported by a Landlord)
- Tax or Other Liens
A credit report will also list “inquiries.” Inquiries are requests for a person’s credit history. They generally happen when someone tries to borrow money.
Too many inquiries can mean someone has tried to open too many credit accounts. This tells the banks an individual might be over their head in debt.
The good news about credit inquiries is, they only affect the credit report for a short time. Also, when someone checks their own credit report, it counts as a “soft” inquiry. Soft inquiries do not affect credit reports. They also don’t affect a credit score. This means people should feel free to check their credit reports and free credit scores as often as they like.
Things to Look for in Your Credit Report
People should read their credit reports carefully. They should look for false addresses and accounts they didn’t open. Both of these things can tip a consumer off that their identity has been stolen. They should also look for negative items such as unpaid debts or errors.
Individuals finding evidence of identity theft in their credit report should report it. The Federal Trade Commission explains how, and provides some handy online fraud reporting tools on their website. Unreported identity theft can torpedo a credit score fast.
Those finding unpaid debts in their credit reports should work with their creditors to pay off the debts. Further, any errors should be disputed. Equifax, Experian, and TransUnion all have handy online error reporting tools. Just click the links in the previous sentence to see them.
In a Nutshell
- Anyone can check their credit report for free from AnnualCreditReport.com.
- It’s a good idea to check a free credit report from a different credit bureau every three months.
- Free credit scores are available from many banks and credit card companies.
- CreditKarma.com offers free credit scores to users of their website.
Knowing the credit score is crucial for consumers wanting to take charge of their financial lives. Traditionally, credit reports have been available for free. However, in the past, people had to pay to see their credit scores. Recently, free access to credit scores has meant that individuals can monitor their finances with ease.