Of all the confusing topics in personal finance, credit scores (a number that represents the cumulative health of your credit) and credit reports (the report that compiles your personal credit history) have to be near the top of the list. Not only are there three different credit bureaus (Equifax, Transunion, and Experian) that each report information a little differently, but each bureau also calculates a FICO score that is likely different for each of the bureaus.
Your FICO score is called a FICO score because it is calculated using software from Fair Isaac and Company. This model is the predominant scoring method in the industry at the moment and many banks use a version of FICO to make lending decisions. However, since each bureau may collect a different combination of credit information, and because they each have their own formula for how to calculate the score, the three scores are rarely the same.
In addition, each bureau calls its FICO score something different: Equifax uses the Beacon score, Transunion calls theirs an Empirica score, and Experian simply calls their score the Experian/Fair Isaac Risk Model.
As if that wasn’t bad enough, the three bureaus don’t appreciate the stranglehold Fair Isaac has on the industry so they each have their own proprietary scores and in 2006 they collaborated to create a score called the VantageScore to compete with the FICO.
Finally, the bureaus want you to pay for their scores. These scores can vary significantly, it may be difficult to really gauge the health of one’s credit, and the score you pay for may not even be the score a bank uses to determine creditworthiness.
So, what’s the good news?
One of these bureaus has finally decided to create a FREE tool consumers can use to monitor and track their credit history and score over time. creditkarma.com is a service that tracks your score and credit report changes for free. The site provides daily updates to your TransRisk score (Transunion’s proprietary model), VantageScore, and Auto Insurance Score (score used by insurance companies to gauge one’s insurance risk).
I highly recommend checking out this website. Not only do they provide free score updates, but they also show changes in balances, risk ratings, and other alerts so it becomes much easier to understand how a credit score moves over time. And even though there are a myriad of different scores out there, consistently tracking one score can be useful and can also be very helpful when determining the best time to apply for a new loan. I use their free App on my iPhone and also access their website from my desktop.
Considering how difficult credit can be to manage, it is refreshing to see Transunion create a service that makes the whole process easier.
Community Banking Today 