Totally Free Credit Score - No Such Thing

There's a lot of confusion about the difference between credit reports and scores, where to find them online, and how to get a totally free credit score with no strings attached. So this blog post, I'll try to clear up some of the confusion that surrounds this subject.

First things first. Let's talk about the difference between reports and scores, since many people think they are one and the same.

• A credit report is a record of your financial history. It includes information about your past and present credit accounts, loans, payment histories, collections (if any), and other related items. You have three different credit reports, one for each of the reporting bureaus -- TransUnion, Equifax and Experian.
• A credit score is a numerical representation of your report. The FICO credit score is the one most commonly used by mortgage lenders, and it ranges from 300 - 850 (higher is better). You have three scores, one from each of the reporting bureaus, and they can all be slightly different.
  

Understanding the difference between these two things is the key to eliminating confusion. It will also help you understand why there's no such thing as a totally free credit score.

The Myth of Totally Free Credit Scores

In accordance with the Fair Credit Reporting Act (a federal law enforced by the FTC), you are entitled to one free credit report per year, from all three of the reporting bureaus mentioned earlier. You can do this once a year free of charge, and the best place to make your request is through the FTC-approved website at AnnualCreditReport.com.

However ... there is no federal law that entitles you to a totally free credit score. Remember, your score is different from your reports. Now, here's where things get a little confusing. But I'll do my best to keep it simple.

If you want to get a totally free credit report from Equifax, TransUnion and Experian, you can do that right now by visiting the AnnualCreditReport.com website. On the other hand, if you want to obtain your credit scores as well, you will have to pay for them in some way, shape or form.

On some webites, you will see an advertisement for "3 Free Credit Reports and Scores." But this will always be followed by an asterisk and a disclaimer of some sort. Usually, you have to sign up for some kind of credit monitoring service / identity theft protection. You'll have to pay a monthly fee for this service, but you can cancel it anytime. So you can see that it's not a totally free credit score because you've had to sign up for something in order to get it.

You can also purchase your credit scores directly from the reporting bureaus mentioned above, without signing up for any kind of monthly service. You can request it through the MyFICO.com website as well. You will probably pay between $15 and $30 for a single credit score, depending on where you get it.

So let's sum up what we've discussed so far:

• Your credit reports and scores are two different things.
• Federal law entitles you to one free credit report per year, from all three bureaus.
• There really is no such thing as a totally free credit score with no other purchase required.
• You can buy your scores individually or in conjunction with a monitoring service.
• Either way, you're going to pay for the score in some fashion. So it's not totally free.

In closing, I'd like to make an important point on this subject.

It's Still Worth the Money

I'm not saying all of this to dissuade you from purchasing your credit scores. On the contrary, I encourage you review your scores before applying for a mortgage loan. I just want you to understand how the process works. My goal with this article is to help you navigate your way through all of the marketing hoopla to get what you're after.

So even though you can't find a totally free FICO score online, it's still worth the money. You can sure that a mortgage lender is going to review this information when considering you for a loan, so you should preempt that by reviewing your own credit situation -- before applying for a loan. You also need to know where you stand, in terms of your score. If it's low, you should focus on improving your credit so you can get qualified for a good loan with a decent interest rate.

I hope this article helps you understand the world of consumer credit and how all of these things tie together. If you'd like to learn more about this topic, check out the credit section of the main website.

Frequently Asked Questions About Credit Scores - Credit FAQ

In response to the economic crisis that came to a head in 2008, we recently launched a new blog to answer consumer questions about credit scores (as they relate to mortgages and home buying). Shortly after the blog was announced, the questions came rolling in! Some trends have already emerged, and we would like to present those trends in this list of credit score FAQs.

This is a hot topic among home buyers, but it will become even more popular in 2009 and beyond. See question #3 to find out why.

1. Where do my credit scores come from?

This is a question we get two or three times a week, so I'm happy to answer in this FAQ list. Your credit scores come from Experian, TransUnion and Equifax. These are the three companies who maintain credit data on consumers in the United States. Each company can produce a credit report on you, which is basically a record of your financial history (your debt, your payment history, etc.).

These reports are put through a scoring system to produce your credit score. So you actually have three different scores -- one from each of the reporting companies mentioned above.

With that one answered, let's move on to the next credit question on the FAQ list:

2. Why is credit so important when buying a home?

When you apply for a mortgage loan, the lender will review your finances from every possible angle. They will verify your current income and debt, and they'll also check your credit. Most lenders will either use a merged score that averages the three mentioned above, or they'll just look at two out of three credit scores. This gives the lender some idea of how responsible you've been in the past, from a financial perspective.

So a good / high score will help you get approved for a loan, and it can also help you get the best interest rates (which means a lower monthly payment). This is why it's such a hot topic among home buyers.

Moving right along, let's tackle the next credit score question on the FAQ list:

3. How has the economic crisis affected all of this?

This is a common question about credit in the current economy, and for obvious reasons. As a result of all the foreclosures we saw in 2007 and 2008, a lot of lenders have bad loans on their books. So as we go forward into 2009, they will be less inclined to make new loans until they figure out how to recoup some of their losses and prevent future ones from happening.

In addition, there are new regulations on subprime lending (giving loans to people with bad credit). Because of these and other factors, home buyers will need higher credit scores to get mortgage loans in 2009 than they needed in the past.

This brings us to another popular question about credit that people often ask:

4. What can I do to maintain a good credit score?

In a nutshell, you can keep your score high just by being financial responsible. This means paying your bills on time, managing your debt well, and using credit cards responsibly (i.e., don't have too many cards and don't max them out). Your history of bill payments accounts for about 35% of your score, so if you have a pattern of late payments it can do serious damage to your credit, especially if those accounts are sent to a collection agency.

5. How do I find out what my score is?

Because you have three of them produced by three different companies, you have to request your scores through those companies (Equifax, TransUnion and Experian). In most cases, you will have to pay for the information, but it's not expensive. By law, you can request your credit reports once a year for free ... but there is no such law for your actual scores.

You can also find package deals that include all of this stuff for one price. You'll find some website recommendations on our credit reports page.

Get Answers to Your Credit Questions

Do you have questions about credit reports and scores? If so, check out new Q&A blog over at the Home Buying Institute. It's a free service. Here's the web address:
http://www.homebuyinginstitute.com/help

Your Credit Score in 2009 - What You Should Know About Credit

What credit score will you need in 2009 to qualify for a mortgage loan? It's difficult to say here in the present, because our economy is in turmoil. But one thing is for certain -- home buyers will need better credit scores to qualify for financing in 2009 than they needed in the past.

Bad credit mortgage loans are a thing of the past, and rightfully so. So you must be financially responsible in the present if you hope to buy a home in the future.

Being Credit Smart in 2009

With that scary intro out of the way, let's start your credit-awareness program right away! Here are five more things you should know about your credit score in 2009 and beyond:

1. Your credit score is your key to financing.

When you apply for some kind of consumer loan, the lender will review your financial history to determine your "creditworthiness" (a fancy way to describe the level of risk associated with loaning you money). Much of their review will focus on your credit report and score -- and yes, they are two different things.

Your credit score is a number that usually falls within the range of 300 - 850. Higher is better. When you fall at the upper end of this range, you have a better chance of qualifying for car loans, mortgage loans, etc. When your score is low, however, you could have trouble getting approved for a loan.

2. After the economic crisis, good credit will be more important than ever.

As mentioned above, it has always been important for consumers to maintain a clean credit history and a high score. But in the wake of the economic crisis that came to a head in 2008, good credit will be more important than ever in 2009 and beyond. In the "new economy," lenders will impose stricter criteria on borrowers who seek financing.

I'm not gazing into a crystal ball here. I'm just looking at what's happening right now and projecting it into the future. We are already seeing this kind of trend in the finance world. The bottom line is that consumers with bad credit will face even more obstacles in the near future than they've had to face in the past. It's going to get tougher to obtain the best interest rates on a loan as well. So you need to maintain a good credit score!

3. You need to know what's in your credit reports.

It's not uncommon for errors to show up in a person's credit report. In fact, it happens quite often. It might be a simple typo within your personal data. Or it could be something more serious, like a credit account showing up that's not even yours. This might even suggest identity theft. So there are really two important reasons to know what's in your reports -- (1) to prevent errors from affecting your score, and (2) to spot instances of fraud.

By law, you are entitled to one free credit report per year, from all three of the companies that maintain them. You can learn more and request your information at the website AnnualCreditReport.com (a site that is jointly owned by Experian, TransUnion and Equifax).

4. Bad financial behavior in the present could follow you for years to come.

The financial actions you take now will show up on your credit report for a long time to come, well beyond 2009 for that matter. There are laws that require negative information to be removed after a certain period of time. But that period might be seven to ten years! So, for example, by falling behind on your bill payments here in the present, you could hurt your chances of getting a mortgage loan five or six years down the road. This underscores the importance of being financially responsible.

5. Most credit repair companies are scams -- you can do it yourself.

There are a lot of companies who claim to have the ability to fix all of your credit problems (if you have any). But these companies cannot erase the past. Most of them simply correct errors on their customers' credit reports, and that's something you can do for yourself. In fact, the FTC even warns against these so-called "credit repair" companies, because most of them are scams.

You can learn more about credit scores and how to improve them from this library of article:
http://www.cornettcommunications.com/credit-score.php

Related article: What is a good credit score by 2009 standards?

Home Mortgage With Bad Credit - Highly Unlikely

About once a week, I get an email from somebody who is trying to get a home mortgage loan with a bad credit score. They ask for advice on how they should proceed. I get this question so often, in fact, that I thought it was time to answer it here on the blog. That way, anyone else who is wondering how to get a home mortgage with bad credit can benefit from the response.

Here's my take on the matter:

In light of recent economic events, I can only think of one scenario where it makes sense to pursue a home loan with poor credit ... a life-or-death situation. Anything short of that, and it just doesn't make any financial sense. There are several reasons why advise against this, but let's stick with the two biggest reasons:

1. Bad Credit Mortgage Loans Are History

If you've been watching the news lately, you'll know that subprime loans are one of the primary factors that have wrecked our economy. These are home mortgage loans made to people with bad credit scores. From the mid 1990s until 2007, they were given out like candy. That's because the lenders who gave out these subprime loans could turn around and sell them on the secondary mortgage market. Obviously, this is no longer the case.

But when these subprime borrowers started going into foreclosure in record numbers, the government finally stepped up its regulation on this bad credit lending practice. Too little too late, I'm afraid. The damage was already done. The mortgage crisis became a full-scale economic crisis, the likes of which we have not seen since the Great Depression.

As a result of all this, it's virtually impossible to get a home mortgage with bad credit these days. And whether you care to hear it or not, this is actually a good thing. Point #2 explains why.

2. It's a Recipe for Disaster

Even if you could get a mortgage loan with a bad credit score -- which, as we have discussed, is nearly impossible -- it's not a smart thing to do. When you apply for a loan, the lender will examine all aspects of your finances (past and present) to determine what kind of risk you are. If you have bad credit, this sends up a red flag. It tells the mortgage lender that you have had trouble managing your finances in the past. In other words, they will see you as a higher risk.

When this is the case, one of two things will happen. They will either decline your application entirely, or they'll give you a home mortgage loan with a higher interest rate -- a higher rate than a person with good credit would have to pay. This translates into a higher mortgage payment each month, because interest is one of the things that make up that monthly payment.

If you're not careful, this is the kind of scenario that can lead to debt problems or possibly even a home foreclosure. We are seeing this exact scenario happen all across the country right now, with alarming frequency.

So my advice is to forget the idea of getting a home mortgage loan with bad credit and focus, instead, on rebuilding your credit score. If you do that, you'll have an easier time getting a loan, and you'll get a lower rate at the same time. A double win!

5 Steps to Rebuilding Your Credit Score

by Brandon Cornett

In 2009, there will be a lot people rebuilding their credit due to foreclosures, bankruptcy and other factors. The housing crisis and other factors have caused problems for a lot of folks, and these problems usually culminate in the form of a bad credit score.

So if you're one of many Americans who will be rebuilding your credit over the coming year, you're not alone. The question is, how do you go about it? What steps are needed to rebuild a credit rating over time, and which steps should you focus on first? These are the questions we will tackle in this lesson.

Rebuild Your Credit Score With These Steps

Here are five of the most important things you can do as you venture forth in your quest for better credit.

1. Identify the Problem

Before you do anything of the other things on this list, you need to try and figure out why your credit score is bad to begin with. If this answer is obvious (like a bankruptcy filing or a long history of missing bill payments), then you can probably move on to the next step in the list. The key to rebuilding credit is to identify the bad financial behavior that caused the problem, and then to correct the behavior.

2. Correct Errors on Your Credit Report

If you've haven't ordered a copy of your credit reports in the last year, you should do it as soon as possible. It's not uncommon to find errors within your credit history. They may be data mix-ups, or they may be signs of fraud. Either way, they can drag your credit score down even lower.

I put this step high up on the list for a good reason. Fixing these errors can be a time-consuming process, so you should start right away. Start by ordering all three of your credit reports and reviewing them for mistakes. If you find a problem, you'll need to contact the company that produced that particular report (either TransUnion, Experian or Equifax). Remember, the rebuilding process begins by reviewing your current situation.

3. Reduce Credit Card Balances

Most financial experts agree that this is one of the fastest ways to improve a credit score -- if it's not the fastest. This is also one of the best things you can for debt reduction in general. Credit cards usually have a much higher interest rate than other forms of debt (such as student loans and mortgages). So when you pay these balances down, it helps improve your debt-to-income ratio at the same time you're rebuilding your credit score. You can see why this is such an important step in the process.

Right about now, you might be saying "easier said than done." It takes extra money to pay down these balances, instead of just paying the minimum balance each month. So where does the money come from? Well, you'll have to reduce your spending (see item #5) and work out a payment plan to whittle away at those credit card balances. It will take some discipline, but it's a crucial step needed to rebuild your credit rating.

If you need some professional help from a debt expert, check out the free debt counseling service available from Credit.com.

4. Pay All Bills on Time

Getting behind on bill payments (for auto loans, credit cards, etc.) is one of the key reasons why people get into bad-credit situations in the first place. In the first step above, I asked you to identify the source of the problem. If missing payments is part of the problem, you need to correct.

One of the best things you can do is to handle a bill as soon as you get it out of the mailbox. Putting it into a stack somewhere will increase the likelihood that it doesn't get paid. You can also set up online auto-pay to make your life easier -- just about everyone offers it these days.

5. Get Your Spending Under Control

When you spend more than you earn (as so many Americans do these days), you will inevitably build up a lot of debt. This is often in the form of credit card debt -- the worst kind to have! This is where discipline comes into the picture again.

Sit down and create a budget to see how much money you spend every month, and what you're spending it on. Now look for items that can be eliminated. Going out to dinner, going to the movies, buying luxury items you don't really need ... these are all things that can be scaled back or eliminated entirely. Rebuilding a bad credit score is all about awareness. You need to be aware of what you're making each month (after taxes), what you're spending each month, and how it's affecting your overall financial picture.

What Is a Good Credit Score in 2009

What is a good credit score and how do I get one? These are going to be common questions among home buyers in 2009, and with good reason. The definition of "good credit score" has changed over the last couple of years, as a result of the housing crisis that spread through our economy as a whole.

It's hard to put an exact number on this without first defining what a good credit score is. For example, is is the score at which you can qualify for a mortgage loan? Or is it the score that allows you to get the best interest rate on that loan? These are two different levels, so you can see why it's hard to define it precisely.

The Definition of Good Credit Has Risen

One thing we can say with certainty, however, is that the definition of what's considered to be a good credit score has gone up over the last few years. For example, consider the following:

I was recently watching a financial expert on television, and she was explaining what it takes to get the best rates on a mortgage loan these days. Back in 2006, a borrower would need a credit score of 620 or above to qualify for the best interest rates. But in May of 2008, just two years later, that same buyer would need a score above 750 to get those same rates.

Given the current state of the economy, lenders are simply refusing to loan money to people with bad credit. It's too much of a risk for them, given what has happened over the last few months. So here's one thing we should all be able to agree on. While the definition of good credit will vary depending on who you ask, the vast majority of consumers in this country can benefit from improving their credit scores as much as possible.