3 Reasons Why You Shouldn’t Rely on Your Free Credit Score

FICO scores

More and more credit card companies offer a free FICO credit score to customers.

Since you usually have to pay a fee to get your score from the three major credit bureaus, getting a free score seems like a great deal. But the free score they give you can be entirely different than the FICO score from the credit bureaus. Below, find out how these scores are different.

Getting my free FICO update

I’ve had a Discover card for about 10 years; I get great rewards and I find their customer service to be excellent. When they added the free credit score perk to my account, I was thrilled.

I’m considering buying a home, so last month I checked my Discover statement to get my latest score. The site told me my credit had reached an all-time high of 817. That would put me in the “excellent borrower” category, and I’d be able to get the most competitive interest rates on the market.

But when I applied for mortgage pre-approval, the lender disagreed. They sent me a report from Experian, one of the big three credit bureaus, that showed my score was just 765 — a 52 point discrepancy.

That’s not a humblebrag; 765 is a totally respectable credit score. But it would put me in the “very dependable borrower” range rather than “exceptional.” And that 50 point difference can translate to a higher interest rate, costing me thousands more over the length of a 30-year mortgage term.

So why is there such a difference between scores?

Explaining credit scores

There are several factors that can cause your free credit score from a credit card company to differ from the score reported by the credit bureaus. Here are the three main reasons for the discrepancy:

1. Credit scores from different credit bureaus

There are three main credit bureaus: TransUnion, Equifax, and Experian. Some credit card companies offer a free score from one of the bureaus, but that score may be different than the credit score from another company.

In my case, Discover uses TransUnion to calculate the credit score, and apparently, TransUnion thinks I’m exceptional. But my mortgage lender went through Experian, which calculates its credit score differently and found me to be only very dependable.

Some credit cards don’t use any of the three bureaus. Instead, they may use credit scores that are called “equivalency scores” or “educational scores.” While they can give you an estimate of your credit score, they are far from accurate.

2. When the company pulled your information

Another factor that can influence your score is when the company looks up your information. If the credit bureau pulls your report when you have a balance, you will have a lower score. But if they calculate it right after you make a big payment, it will be higher.

That’s certainly true in my case. My Discover credit score is updated each month the day after my payment is due, so my balance is always at zero when they run it. The score provided by Experian was pulled in the middle of the month, when my balance tends to be at its highest. That likely affected my credit utilization ratio and lowered my score.

3. Different inquiries use different scores

Even if you’re familiar with FICO scores, did you know that there are different scores depending on the kind of loan you’re pursuing?

There are actually 49 types of FICO scores, each using a different calculation and formula depending on the industry. For example, my Discover card uses FICO score 8, a common score used by credit card companies to evaluate customers’ credit limits. It looks mainly at credit card usage and isolated late payments.

But my mortgage lender used FICO score 2, which also takes into account your other types of debt, such as student loans, personal loans, or auto loans — and that can result in a lower score.

Do free FICO scores have value?

While your score from the credit card company may not be 100 percent accurate for all borrowing scenarios, it’s still very useful in giving you a FICO score range.

Having a ballpark estimate of how good your score is can be helpful. If it’s lower than you would like, you can take steps to improve your credit, without having to spend money on a report.

If your score looks good, you know you should be in excellent shape when applying for any kind of loan.

Just keep in mind that there may be some discrepancies, and continue to monitor your overall credit report regularly to make sure everything is accurate.

If your credit isn’t where you want it to be, don’t give up hope. See how one man raised his credit score by 500 points, achieving near-perfect credit.

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