I'm going to start this by saying I'm not one to create posts about credit or finances. Yes, I did work for well over a decade (at least) in a capacity where I was giving people credit related financial advice. Although I did give wonderful advice to many lucky people, I had a rather hard time following my own advice. Back then at least.
I'm trying really hard to follow my own advice now though! I guess I deserve some credit, right? (Pun intended-haha)
My husband and I have a goal of buying a home this year. With that, credit monitoring is very (very) important. Afterall, I know just how important one's credit profile is. If you have dreams of becoming a home owner, paying particularly close attention to your credit report is going to be one of your biggest priorities. You have to pay attention to everything! You can't do that if you aren't sure what's reporting on your credit, or what your credit score even is!
Everything these days cost money, right? If you have aspirations of owning a home saving every last penny is so very important. So, if you can get a FREE credit monitoring tool why not? I did, I'm sure many people have. But I've discovered there are many aspects of a FREE credit monitoring membership that we need to take with a grain of salt.
First, I'm going to point out the PRO's of using a FREE credit monitoring program
#1 Instant notification if there are ANY changes to your credit report! (& I'm talking I-N-S-T-A-N-T!)
We bought a new car earlier this year, which may I add I detest financing vehicles, but I'm in the same position as the rest of us. I can't pay cash for a $20k or $30k vehicle. So I go the same route most of go, financing! Usually, I go with my own financing already in place. BUT-this time, I didn't. So we did the loan application at the auto dealership. Almost immediately (no, sorry it was literally, immediate) after the credit manager hit “submit” my cell phone started pinging! it was Credit Karma and Credit Seaseme telling me that new inquiries had been added to my credit profile.
#2 You can see exactly what reports on your credit profile, everything from current accounts to past mistakes
I haven't found a Free credit monitoring membership that lets me see all three major credit bureaus, but I can see at least two of them with Credit Karma, and I believe the same two with Credit Seaseme. I can see everything from current accounts, inquiries, collections, judgments, everything is there! Which makes it SUPER easy to submit a dispute when something hits your credit profile that shouldn't' be there. You can get the erroneous information off your report just as quickly as it landed there because you monitor your credit. If you didn't, it may sit there for years wreaking havoc on your credit score. By the time you find it, a dispute could take a while. Not to mention, the damage has been done and it wasn't even your account, to begin with!
#3 They give you personalized recommendations based on your current debt/financial circumstances
Now, if you are rebuilding your credit, trying to pay down your credit card debt, or simply starting out and trying to establish your first credit account period; every free credit monitoring program I've ever used has given me suggestions, tips, or advice. For everything from my auto loan interest rate to my credit card debt, to tips to improve my score. They even have a simulator you can use! Now, this is a great tool. Let's say you're considering a financial transaction, but you want to see how that transaction will affect your credit. You can input the changes you'd expect to see if this transaction went through, and they will guesstimate what effects it would have on your credit profile! This tool can be useful, yes.
Now that I've finished discussing the benefits of a Free credit monitoring membership, let's talk about the cons or negatives that make me not pay all that much attention to these memberships anymore. Well, beyond the three reasons above at least.
#1 Credit scoring system is much different than traditional banks
The credit score that Credit Karma or Credit Seaseme (just naming a couple, there are many other Free credit monitoring programs out there) give you is not your real and true credit score. Have you ever gone to the bank, or dealership, to inquire about a lending transaction? You go in fully armed with all of your credit and finance stats and facts. Only to find out that you WAY undershot yourself when the bank says “your credit is much better than you think”. Imagine the twisted, contorted and confused look that comes across my face when they say it because I thought my credit was “decent” but not what a lender would consider “good”. These situations are more common than you think, most people don't realize that their credit health is much better than they think. Or, imagine the situation in reverse! You think your credit health is excellent when in reality it's not… it can go both ways, that's for sure!
#2 There isn't a company in existence that can operate solely on Free memberships
So what does that mean to us? To those who use their Free services? Well, let's start with the bank tells you that your credit score is 691. This isn't a terrible score. It's not excellent, but it's not bad either. You're so confused because Credit Karma tells you that your score is 603, you're sitting in the loan originators office thinking you're a subprime borrower when in all reality you are not. The reason there is such a drastic difference in your actual FICO score (the score lenders use) versus your free credit monitoring score, is because they use a different system to “guess” your score. And they low ball it, almost every time! I have my own opinion on why they low ball, keep reading, it's just my thoughts…
#3 They want you to sign up for their offers, the ones they give you based on “your” credit health
Which most often is more of a subprime credit offer. Which is why I take their “recommendations” with a grain of salt, and only really use their services to keep my eye on WHAT is reporting on my credit, not HOW they say my overall credit health is!
If you think about it, there's quite possibly a very good chance they get kickbacks or incentives for their member's applying for an offer in their “suggestions for your credit” section of your membership. I don't know if they do or don't, I'm only jotting own my own personal thoughts here. But, logic tells me they must. How else are they making money to cover their expenses when all of their subscribers join for free? Logical, I know. That explains why my credit score variance has been as much as 100 points off from my actual credit score at the bank!
Some credit companies offer free monthly FICO score as part of your account. If you have a credit card or auto loan and you see that the lender offers you a free monthly update to your FICO score, enroll in that monthly update. In my experience, this number will be the closest to your true credit score, the one the banks use. In reality, that's the one that matters! If it doesn't say “FICO” then chances are they are using their own model to “guess” your credit score just like the free credit monitoring companies do. So, if you enroll in anything other than a FICO update, take their reporting with a grain of salt too. And never get discouraged. There's always room for improvement and the slightest change could cause your actual credit score to rise or fall rather drastically.
Discover IT offers everyone, customer or not, a free glimpse at their credit score. I've found the score they provide is also derived from the FICO scoring model, which is closest to the real deal. This is the score you want to pay attention to. So if you want a closer look at what lenders will view for numbers when they pull your credit profile, you can see that through Discover IT, again it's for everyone whether or not you are a Discover customer or not. You may get Discover card offers after enrolling, but you don't have to opt-in. That's always your choice!
Credit scoring has always been something that widely ranges across all three of the major bureaus that calculate our credit worthiness. But, by paying attention to the correct numbers, you'll be in a better position to know what you may or may not qualify for at the bank, even before visiting the bank.
One last bit of advice, don't ever name your rate or terms when applying for credit! Let them tell you what you qualify for. Then you can negotiate from there. If you've been relying on a score from free sources, chances are you qualify for much more favorable terms than you realize. If you name your rate, you could get stuck in a more expensive credit account than you would've had you let the bank name the term you qualify for.
In closing, free credit monitoring is a great tool for just that, monitoring the facts that report to your credit profile. If you're looking for your true and correct credit score, you can get that by enrolling in a monthly “FICO” score update. Not all creditors offer a “FICO” score, though most offer a generic, guestimate. If you don't have an account that offers you your FICO, then head over to Discover IT and they will give you a FICO score that's much closer to the real deal! Although my thought is any credit monitoring is better than none at all, so if you currently don't monitor your credit I'd highly suggest you get started!
Credit is something that has baffled an confused many for so long. By paying attention to the information that your creditors are reporting on your credit profile, you are one step ahead of the many of people who don't monitor their credit! I don't know about you, but I sure don't want anyone else's information reporting on my credit report! I've put lots of time and effort into the rather average score I have no, I certainly don't want to be battling over derogatory reportings that aren't even mine to battle over! It happens more often then you'd think too!
If you're more concerned with the data than the score, Credit Karma is a wonderful tool! So isn't Credit Sesame. You just may need more than one of these tools to get a better snap shot of your true credit score.