Earlier this week, we published part one of You Have 30 or More Official Credit Scores, which included several options for fee-based services that provide credit scores. In part two, we explore the free options that are available for consumers and when to use them.
Did you know that when you receive your credit score at no cost — whether through your credit card or a free service such as Credit Karma, WalletHub, or NerdWallet — it’s often not a FICO score?
In 2006, the three main credit bureaus, Equifax, Experian, and TransUnion, jointly created a credit scoring model called VantageScore to compete with FICO. When you use a free online service to get your credit score, the score you see is often a VantageScore, not a FICO score.
So what’s the problem with relying on the free sites?
For one thing, a VantageScore is calculated differently than a FICO score. VantageScore 3.0, the latest version of the model, disregards collection accounts that have been paid in full, whereas the FICO models still factor them in.
Also, VantageScore claims that up to 50 percent of lenders use their score, but I don’t know a single one that does. I have nothing against their scoring model, I just don’t see as much adoption of their service as they claim.
Why does this matter? If you apply for a car loan based on seeing a VantageScore of 700 without being aware that their scale goes up to 850, you might feel confident about your credit and the likely monthly cost of the car. However, your lender is likely to be looking at your FICO Auto score of 600, which means you’re going to end up with very different terms than you anticipated!
I see this happen fairly often in my practice, and my clients usually think the better score they saw for free must be wrong. In truth, neither score is wrong — it’s just that each one is calculated using its own algorithms. Remember, the only credit score that matters is the one your lender is using.
So when should you rely on information from companies that provide free credit scores?
While the scoring models used by these companies might not be used by lenders as frequently as FICO scores, their sites offer other great features that can be a useful part of understanding the overall picture of your credit health. Let’s take a look.
Credit Karma, WalletHub, and NerdWallet
Credit Karma, WalletHub, and NerdWallet all give you free credit scores and reports. Credit Karma gives you access to both your TransUnion and Equifax credit reports and VantageScore, while WalletHub and NerdWallet only provide your TransUnion report and VantageScore. You don’t receive access to your Experian report through any of these services, but the odds of something appearing on just Experian, and not the other two, are low, so they can be a great way to regularly monitor what’s on your credit report for free.