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Momentum toward free credit scores continues

By John Ulzheimer

Twenty years ago, only banks used credit scores. Roughly fifteen years ago, mortgage lenders started using credit scores. A dozen years ago, credit scores became a product to be sold to consumers via the Internet. Today, credit scores are being given away like Christmas gifts.

But what should you do once you’ve received your score? Instructions typically aren’t included, and a score without context is just a three-digit number. To fully benefit from the free credit score momentum, you’ve got to fill in some blanks on your own.

Step One: Claim your free credit score

There are a variety of websites giving away free VantageScore credit scores, including Credit.com, CreditKarma.com, and Quizzle.com Companies like Mint.com and CreditSesame.com are also giving away commercially available credit scores such as the Experian National Risk Score and the Equifax Risk Score. A variety of credit card issuers also are giving away credit scores. Claim one or claim them all.

Step Two: Understand what you’re looking at

Higher credit scores indicate greater creditworthiness, or lower credit risk. But different scoring models use different scale ranges — that is, the maximum and minimum possible scores under each model can be different.

Most credit scores, including those produced by the VantageScore 3.0 model, fall within a range of 300 to 850, but other scale ranges exist.

The VantageScore 1.0 and 2.0 models, for instance, use a range of 501-990. A score of 650 on that older scale has significantly different meaning than a 650 on the newer scale. (You’ll find a table here that provides approximate conversions of VantageScore 1.0 and 2.0 scores to their VantageScore 3.0 equivalents.)

Determining the scoring model that produced your score, and the scale range it uses, helps you understand where your score falls along the range.

If your scores are at or above 760 on a 300-850 scale, you are considered almost free of credit risk and are likely to qualify for the best deals from most lenders. Scores from 720 to 759 will likely get you approved but may not guarantee the best terms. Scores from 719 to 680 are at or below average and might lead to approvals but certainly with less advantageous terms. Scores below 680 indicate varying degrees of “needs improvement” and may cause you to be denied credit or approved with poor terms.

Note that the free credit score or scores you obtain may or may not be the same as those used by your auto, mortgage, credit card or student loan lenders as a basis for their lending decisions. In fact, it’s very unlikely that the score you see is going to be exactly the same as the one used to process your next credit application. That’s OK, because all your credit scores will be directionally similar, based on the quality of your credit reports. That is to say, if you have good credit, all of your credit scores should be good, and if they’re not so good, improving whichever score you’re looking at also will mean improvements in the others.

Step Three: Learn more about credit scores

Do your own due diligence about credit scoring. There are several free resources chock-full of reliable information about credit scores, how they’re calculated, and why they matter. Reasoncode.org contains a list of factors that impact your credit scores as well as strategies to improve your scores. The Credit Score Quiz will let you test your knowledge about credit scores, and YourVantageScore.com can help bust some of the common scoring myths. You can also read my articles about consumer credit, which I tweet via @johnulzheimer.

Step Four: Check the data behind your scores

Regardless of the scoring model, credit bureau or website, one thing is certain: Your credit scores are based on information in your credit reports. And while you have many credit scores, you only have three credit reports, one maintained by each of the three national credit reporting agencies (CRCs), Equifax, Experian and TransUnion. Thanks to the Fair Credit Reporting Act, you have the right to claim a free copy of all of your credit reports once every 12 months from the website www.annualcreditreport.com, and you should take advantage of this opportunity every year. Check each report carefully, and if there are any erroneous entries in any of them, notify the appropriate CRC immediately. Each CRC has a clearly explained dispute process listed on its website.

One of the best ways to ensure solid credit scores is to make sure the information on your credit reports speaks glowingly of your credit management practices. That means you should always pay your bills on time, keep credit card balance low relative to your credit limits (VantageScore recommends staying at or below 30 percent of the limit), and apply for credit sparingly. If you follow those simple rules, your credit scores will remain much closer to 850 than to 300.

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