By Philip Tirone, author of 7 Steps to a 720 Credit Score
Loads of websites promise to give you a free credit report, but many are swindlers trying to make a quick dollar by up-selling worthless credit scores.
Run and Hide from Free Credit Report Websites
Common sense tells us that businesses cannot survive unless they make a profit. A company that hands out free products or services will almost always use the opportunity to sell a different product. There’s nothing wrong with this sales tactic-after all, you can walk away from the offer at any time.
The problem with websites that promote free credit reports is that almost all of them sell something called a “consumer” credit score. Unfortunately, the consumer credit score is a complete piece of garbage because no lender will ever use a consumer credit score when determining creditworthiness. Instead, lenders use something called a “FICO” credit score.
Let me explain by giving you a brief credit lesson.
Your credit score is based on an intricate formula that is modified depending on who is asking for your score. A mortgage lender places more emphasis on your history of mortgage payments; a credit card company wants to know more about your history with credit cards. Therefore, the formula is altered based on who is requesting your score.
A person pulling his or her own score from a free credit report website will receive something called a “consumer” score. In other words, the formula is modified for the consumer. But a lender will never, ever use a consumer score.
Trouble is, the consumer score and the FICO score are worlds apart. My consumer score came in 237 points higher than my FICO score. In fact, everyone I know who has pulled both a consumer and a FICO score ends up with the same result. The consumer score is always significantly higher than the FICO score.
Imagine the problems this causes. Put yourself in the shoes of a would-be homebuyer. You do a little research and find out that you must have a 720 credit score to secure the best interest rates. Then you visit a free annual credit report website and sign up for the free credit report, which you can receive only if you purchase your credit score. Little do you know that you are buying a consumer score and not a FICO score.
You are delighted when your credit score comes in at 730, ten points higher than needed to secure the best interest rates.
Great, you think. This one is in the bag.
Instead of taking the steps to build your credit score, you celebrate, confident that you can buy your dream home.
But when you go to buy a home, you learn that a 730 consumer score is not the same thing as a 730 FICO score. Indeed, your 730 consumer score translates to a 680 FICO score. On a traditional $300,000 home loan, this is about a $12,000 difference.
So what should you do if you want your FICO score? You can get your TransUnion and Equifax credit scores directly from FICO. You will have to pay about $16 for each score, but the nominal fee is well worth it. At least you won’t be buying garbage!
Philip Tirone is a mortgage broker and the author of 7 Steps to a 720 Credit Score. He also wrote a free consumer-advocacy ebook, What Your Banks Won’t Tell You About Credit: 35 Important Facts They Hope You Never Find Out, to help people avoid scams like the free credit report offer.