Content of the material
- The Dirty Little Secret of Credit Scores
- How Mint Works
- Using Mint’s Score Effectively
- Targeted Offers, A User’s Perspective
- Manage Money and Keep a Budget
- Improving your score
- Non-bank sources
- What Is Your Credit Score and How Is It Calculated?
- Distinguishing Features
- Does Checking Free Scores Hurt Your Credit?
- How We Chose the Best Free Credit Reports
The Dirty Little Secret of Credit Scores
Before you purchase your credit score, understand that the methodology used to calculate the score you buy is different from that used to determine the credit score lenders receive.
While the correlation between the scores is high (90%), correlations vary among different consumer subsets. For instance, the correlation is strongest among consumers with scores below the median than for consumers with scores above the median. In fact, up to 27% of the scores received by individuals could be placed in a different credit score category from what the lender receives.1
While knowing your credit score may be important, it may be more vital to review your credit report to correct any errors that may be hurting your score. After that, you can take any necessary steps to improve your credit profile.
1. Consumer Financial Protection Bureau, 2020
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.Share |
How Mint Works
Mint is a company that allows you to track and manage your finances in one place for free. In addition to this, they provide a free credit score and credit monitoring. Just as with the other two companies mentioned, they also offer advice, tell you how to improve your credit, and help you find offers that are right for you.
Mint utilizes VantageScore, and while they do not seem to indicate on their website where they get the credit report from, other places have suggested they use Experian. As such, the scores provided by Mint are likely equally as valid as other similar sites.
Using Mint’s Score Effectively
When you check your credit score through Mint, you also get a detailed breakdown of what’s in your credit report (which is not to be confused with credit score). Some of the categories within the report are your credit card usage, payment history, age of your credit, inquiries and negative marks. Mint also takes things one step further by explaining how the different information in your report impacts your score and offering advice on how you can improve it.
If you find errors or inaccuracies or there’s something that looks suspicious, there’s nothing Mint can do to change the information. You’ll have to contact Equifax to initiate a dispute or request that a fraud alert be placed on your account. When you trigger a fraud alert, the reporting bureau is required to notify the other two. If you’re dealing with incorrect information, however, you’ll have to initiate disputes with the other bureaus directly.
Targeted Offers, A User’s Perspective
As for whether the targeted ads are truly useful from a user’s perspective, I’ve had mixed experiences with both sites.
Mint, for example, clued me in that I could bump up my credit score a few ticks if I opened a few more credit cards. So I did. I used one of Mint’s recommendations because I trusted that it knew a lot about my habits and personal financial situation. And it does, but there are limits. The card I got charges a foreign transaction fee (that’s on me for not reading all the fine print closely). I make a lot of credit card purchases that are not in USDs. Mint sees my transactions, but it wasn’t smart enough to weed out card offers that penalized me for shopping abroad.
Credit Karma at first impressed me with a little section it includes on its advertisements that lists the pros and cons of the offer. In particular, I noticed it had flagged foreign transaction fees as a con. However, Credit Karma messed up when it tried to play on my fears by telling me I could be saving around $700 if I were to get a credit card with a lower interest rate. Credit Karma didn’t seem to realize that I pay all my credit cards in full, and always have. So I pay $0 in interest. A new card with a lower rate wouldn’t do me any good.
Manage Money and Keep a Budget
Mint offers tools for tracking all your spending and for setting budgets. It suggests budgets in different categories based on your spending history. With Mint, you can carefully classify all transactions. For example, if you have dinner at a hotel restaurant, the charge will likely be categorized automatically as “hotel” or even “travel.” With Mint, you can change it to “restaurant.” When you appropriately classify all your transactions, it becomes really easy to see where and how you spend your money and then set limits on certain categories of spending to meet financial goals.
Credit Karma doesn’t have anything nearly so advanced. It has a rudimentary spend-tracking feature on its website, and a version of that feature is visible in the iPhone app, although it’s not optimized for a phone screen. The tools are rudimentary, and as of this writing, they aren’t worth using.
Improving your score
In addition to getting your credit score from banks, some third-party websites offer users the ability to create a profile to pull their credit score. You should know, however, that these sites don’t have the data-protection requirements that banks are required to have.
Bankrate lets users pull their TransUnion VantageScore 3.0 credit score for free every week.
Credit.com allows anyone to set up an account to view their Experian National Equivalency Score and VantageScore 3.0 credit score every 14 days.
Credit Karma lets users see both their TransUnion and Equifax VantageScore 3.0 credit scores for free by setting up an account. This seems to be the only source of a free Equifax credit score that is available to anyone.
Credit Sesame is another source for anyone to get their TransUnion VantageScore 3.0 credit score. Your score will be updated “every month typically on your first log in of a new month.”
Mint also lets you pull a TransUnion VantageScore 3.0 credit score. Most other third-party sources only ask for the last four digits of your social security number, but Mint requires that you enter your full SSN to create your account.
- Link all of your financial accounts in one place
- Allows you to set up notifications and alerts
- Free credit score access
- The app is free
What Is Your Credit Score and How Is It Calculated?
Before we dig into the accuracy of credit score sites, it is important to understand just what a credit score is and the different methods for calculating it.
A credit score is usually between 300 and 850, which indicates how likely you are to repay a loan or credit card. Lenders use your score to determine what interest rates to offer based on how likely it is you may or may not repay. They charge higher interest if you have a low credit score to make up unpaid loans.
There are several ways that credit scores are calculated. The traditional method is via generating a FICO score. FICO is an analytics software company that is best known for generating consumer credit scores.
FICO scores are calculated using the following information weighted differently:
- Amount owed
- New credit
- Payment history
- Length of credit history
- A mix of credit types
How these categories are weighted depends on how long you’ve been using credit, among other factors. The actual algorithm is proprietary and complex, but your score will always be based on information made available by the major credit bureaus (Experian, TransUnion, and Equifax). If each bureau has slightly different information about you, then your FICO score might differ.
It’s also worth noting there are different versions of FICO scores, and the company offers scores specific to certain types of lending. Your FICO score for an auto loan might be different from your FICO score for a credit card.
Another method for computing credit scores was developed by the three credit-rating agencies as an alternative to FICO. It is called VantageScore. Your VantageScore is calculated using a weighted average of:
- Your available credit
- Recent credit
- Payment history
- Credit utilization
- Depth of credit
- Credit balances
The greatest weight is placed on payment history and credit utilization, which is the same with FICO, but VantageScore’s model allows for credit scores to be produced for consumers who were virtually invisible to the FICO model, including those who are new to credit or who use credit infrequently.
VantageScore also provides reason codes to lenders, which give reasons for any particular score. This allows lenders to assess a consumer’s creditworthiness better.
When a lender does a credit check, they will use either FICO or VantageScore to obtain your credit score and determine what you qualify for.
Mint gives account holders free access to their credit score and credit monitoring tools. You can view your TransUnion VantageScore as often as you would like, thanks to a partnership with TransUnion. Checking your credit score through Mint doesn’t negatively affect your credit.
Your score comes with a snapshot of your credit report, along with insights into how scores are calculated and steps you can take to improve your score. Mint also offers free credit monitoring through TransUnion. Users can sign up to receive real-time alerts whenever TransUnion receives new information from creditors.
Does Checking Free Scores Hurt Your Credit?
When a lender looks at your credit profile, it generates what’s known as a “hard pull,” which means it shows up on your credit report. Ten percent of your FICO score is based on the number of inquiries you have for new credit. When you’re applying for a mortgage loan, multiple inquiries made within 30 to 45 days usually only count as one, depending on which formula is being used.
If you’re checking your score for free, it typically counts as a “soft pull,” so it shouldn’t show up on your score. Getting your credit report for free, either through one of the credit monitoring services or AnnualCreditReport.com, also won’t cause any damage.
How We Chose the Best Free Credit Reports
We evaluated chose the best free credit reports based on a few factors: the number of credit reports you can access, the frequency of updates, the ease of understanding the information, the ease of signing up for a new account, and whether a free credit score or analysis was also included. We excluded any companies that required credit card information to sign up or that only offered a free credit report on a trial basis.