The Free Credit Score You Have is Probably Wrong

Posted by Gabby Boyce on Apr 20, 2016 1:42:49 PM

There are hundreds of different credit scoring models circulating in the marketplace today. In an effort to make credit scores more accessible to the public, some credit card companies and other financial platforms offer “free” credit reports. However, many consumers have recently been caught off guard when lenders pull scores that are much different than the scores they received on free reports.shutterstock_272163653.jpg

This occurs because the various algorithms used for free credit reports are not based on the same risk criteria as the FICO model, which is used by most lenders to determine if a candidate is creditworthy. In fact, the scores from a free credit report can differ as much as 100 points from your actual FICO score.1

It is also important to understand that one score does not serve all lending purposes. Everyone will have three scores from each of the three credit bureaus (Equifax, Experian, and TransUnion). These bureaus provide your base credit score. Your score may fluctuate according to the type of loan a financial institution is pulling your credit for, whether it’s a mortgage, auto loan or line of credit. Therefore, the free score a credit card company may be providing you will not be accurate for all borrowing purposes.

If you’re seeking a more reliable free credit report, individuals are able to request their report once a year from AnnualCreditReport.com. This is the only source for free credit reports that is authorized by federal law.

In today’s economy, a difference of 10 points in your credit score can substantially impact the interest rate of a loan. Before borrowing, it is important to ask your lender which scoring model they use. Most will say FICO, but there are also several types of FICO models for each industry. For example, there are slightly different FICO models for auto loans versus mortgage lending. This is because depending on the type of loan, a consumer could be asking to borrow significantly different amounts of money, and with more money comes more risk.

Understanding credit can be a complex concept. As a responsible consumer, you are encouraged to understand the credit system and know the right questions to ask your credit union before signing loan paperwork. Having an accurate credit score before applying for a loan can give you purchasing power and a manageable rate.

If you’re curious about your credit score or would like more information, make an appointment with one of our Financial Advisors - they would be happy to pull and discuss your credit score one-on-one with you.


1 CNBC. http://www.cnbc.com/2015/12/24/that-great-credit-score-you-got--its-probably-wrong.html

Gabby Boyce

Written by Gabby Boyce

Topics: Borrowing Advice & How to Build Credit