There is no such thing as a free lunch and, unfortunately, there is no such thing as a free annual credit score.
Where the confusion comes in is that you can get a free credit report. In fact, the government requires the three credit reporting companies (Experian, Equifax, and Transunion) to give you a free credit report yearly. But there is no law that says they have to give you a free credit score yearly.
The differences between a credit report and a credit score
A credit report is just that – a report of how you handle your credit. There are three companies that gather and report this information. They are Equifax, TransUnion and Experian. The information they acquire comes from the credit card companies, banks and other companies with which you do business. Order one of these reports, and you will be able to see the factors that go into your credit history – how maxed out are your credit cards, your payment history, how old your records are, how many times you’ve applied for credit and your credit type mix.
To get a free copy of your credit report, just go to www.annualcreditreport.com, fill out the required information and then choose to get your report from Equifax, TransUnion or Experian. A good idea is to spread out your credit checks every 4 months so you can follow your credit throughout the year.
A complex mathematical model
Your credit score comes from a complex mathematical formula that appraises the info in your credit history. If you ask for credit such as a new credit card or a mortgage, the lender looks at your score to determine how much of a risk you represent to their company. The lowest FICO credit score is 300 and the highest is 850. The higher your score, the better. In fact, you really need to have a score of at least 640 to get a decent interest rate. A 720 FICO credit score is considered a good credit score.
If you don’t, you need to get to work to make it better. A low score can even prevent you from getting a job or a promotion these days. It may also result in higher auto and homeowner’s insurance premiums, as well as higher credit card interest rates.
Why a credit score costs money
A credit score costs money because of its convenience. It’s just a simpler way for you, a credit company or a potential employer to see how you stack up in a glance vs. having to plow through a credit report that might be 20 or even 30 pages long.
The “free” credit score.
You may have seen the offers for a “free credit score.” And you can get your score free but you will have to do something to get it. In most cases, it will mean starting a free trial of a credit monitoring service. These services monitor your credit report and alert you if they find possible errors or if it looks as if you’re the victim of identify theft.
If you accept one of these free trial offers, you will have two choices. You can cancel the service before your free trial period is up or your can pay to continue the service. Usually you have 7 to 30 days to decide if you want to continue. But this is a good way to get your free annual credit scores from Experian, Equifax, and Transunion.
If you would rather not go through this hassle, you can just pay for your credit score. Each of the three credit reporting companies sells credit scores for about $8 each. This means that if you want to get your scores from all three credit-reporting companies, you’ll end up paying around $24. (MyFICO.com charges $19.95 for one FICO credit score)
Paying $8 or $24 might seem like a lot of money just to get a three-digit number. But your credit score is so incredibly important these days that buying yours could be one of the best investments you make this year.