Building up and maintaining a good credit score is a great step toward achieving your financial goals. An excellent credit score can open doors to better financing for your dream home or a more reliable set of wheels. When used properly, a credit card can help you start off, continue to improve, or even build back your credit history. Your on-time monthly credit card payments count as 35% of your FICO credit score, after all.
The traditional way to find out your credit score involves contacting one or all of the credit bureaus and paying for their service to provide your score. Thanks to FICO’s Open Access initiative in November 2013, however, credit card users may be able to access their scores free, every month on their statements. More than 50 lenders, including American Express, Bank of America, Chase, and Capital One, offer their customers free credit scores.
It’s important to note, though, that the score you get on your statements may not reflect the actual score your mortgage lender or car dealership is looking at when considering you for a loan.
Case Study of a Free Credit Score
I have accumulated a few credit cards over the years, and some of those cards offer me a free credit score. I’ve looked at the credit scores indicated on my latest statements from each of these cards, and the scores vary by up to 59 points.
So, what’s going on? Which of these credit scores can I trust?
The problem is that these credit cards are all using different factors and ways to calculate the score. Some of these factors include:
- The date my credit information was pulled;
- The credit reporting agency they use; and
- The type of credit score they are reporting.
Given these different factors, you can clearly see that not all free credit scores are alike. It’s important to know what credit data you’re getting to correctly evaluate your financial health.
3 Criteria to Analyze Your Free Credit Score
Based on these findings, let’s review key questions that you should ask yourself about your free credit score from an existing card, or one from a card that you’re planning to open.
1. Is It a FICO Score?
Not all credit cards offer the same free credit scores. Capital One offers free TransUnion VantageScore 3.0 scores to all of its cardholders and, since March 2016, to non-customers through its CreditWise credit monitoring service. CreditWise is available as a smartphone app and allows you to sign up for a new account within the app. (See also: 7 Apps That Monitor Your Credit for You)
Different credit cards use different algorithms to calculate scores. Generally, a FICO credit score provides you a closer look to what your lenders would actually get when pulling your credit score on their own. Credit scores other than a FICO are considered “equivalency scores” or “educational scores,” and are often referred to as “FAKO” scores. While a FAKO score may give you a general idea of where you stand with lenders, it may not be accurate enough to tell you whether or not you’ll get approved for a loan.
2. If It’s a FICO Score, Which One Is It?
FICO has been in the credit score business for over 25 years and it has developed more than 50 types of credit scores! Most credit card companies offering a free FICO score provide the FICO Score 8. The key differentiating factors of a FICO Score 8 are that this score:
- Gives a bigger weight to cards that have a balance close to the cards’ limit;
- Is more forgiving than other FICO score versions to one-time late payments of at least 30 days;
- Provides a bigger penalty for numerous late payments;
- Reduces “tradeline renting” benefit (a credit repair practice in which individuals with poor credit are added as an authorized user to a stronger credit account); and
- Ignores collection accounts with an original balance under $100.
3. What FICO Score Will Your Lender Use?
Depending on their industry and preferred credit reporting bureau, lenders can use different scores. Here are some examples provided by FICO:
According to FICO, the FICO Score 8 provided for free by most credit card companies is most useful when applying for a credit card. For other purposes, your FICO Score 8 may not appropriately predict your likelihood of not paying as agreed in the future of a specific credit obligation.
The Bottom Line: Should You Sign Up for a Free Credit Score From Your Credit Card?
Yes, you should definitely sign up for that free credit score from your financial institution as long as it’s a FICO score. The main reason is that the lowest price offering from FICO (9 FICO scores, including FICO Score 8, and Equifax credit report monitoring) is $19.95 per month or $219 per year. If your current card doesn’t offer you a credit score or you’re looking to take advantage of a balance transfer with a 0% promotional APR, here are Wise Bread’s recommendations on best credit cards that offer credit scores.
Having access to your free FICO Score 8 will allow you to save money on credit monitoring fees until you get closer to the acceptable range that your lender is looking for. Once you’re closer to your target score, find out from your lender what score they are using and consider signing up for the myFICO score tracking service that gives you access to that specific score (ask for score name and company that issues it). While this option may cost up to $29.95 per month for a couple of months, it will allow you to have a more accurate picture than your FICO Score 8 and prevent a hard pull from your lender. Remember that each hard pull on your credit history slightly brings down your credit score, so it’s a good practice to minimize hard pulls.
Of course, make sure to read the fine print on the service agreement with myFICO so you don’t miss the deadline to prevent a charge for the next month.