Thursday, January 10, 2013

Why Credit Score Tools Are a Scam
















I did an internet search for credit score tools and 14,000 results were returned. With this many results it’s no wonder consumers are led to believe that purchasing a credit score tool or monitoring your credit score is a good investment. Freecreditscore.com advertises a Score Planner tool that use can use to see how a payment affects your credit score.  Creditkarma.com advertises a credit score comparison, score simulator and other tools.  This appears to be a free service that does not require a credit card.Creditcards.com offers a free credit score estimator.  Other sites frequently used as credit.com, quizzle.com, Bankrate.com offers a free FICO score estimator. 

These websites and companies are not regulated and are not part of the legally mandated free annual credit report program offered by www.annualcreditreport.com. Even the major credit bureaus, Equifax, Experian and TransUnion offer credit score tools.  Watching your credit score is like watching the stock market – it can drive you crazy.

Your credit score can change daily, even multiple times a day depending on the amount of activity made on your accounts or updated information sent to the credit bureaus.   Watching your score tells you that you either have bad credit or good credit which most people already know.  However, according to a study by the Consumer Federation of America only 25% know what their credit score is and only 43% obtained their credit score in the last 2 years. This is an alarming statistic since credit scores are used by most companies to provide service such as phone and cable companies or to obtain approval for a loan or credit card.  Here are 12 reasons you shouldn’t watch your credit score.

  1. Fees.  Companies charge a fee to watch your credit score which range from $14.95 to $20 a month. It doesn’t make sense to watch you score because there is no benefit. There are exceptions if you are planning on making a big purchase such as buying a home and need to have a specific credit score for approval. Paying off old debt and making payments on time are the only ways to boost your score.
  2. Time. Watching your credit score gives you a snapshot and only provides your score at a specific time. Your score may increase or decrease by the time you apply for a loan or credit card so don’t use the score as an official credit score.
  3. Privacy. Many of these sites require you to enter your SSN and credit card information.  You increase your chances of identity theft when entering your personal information online. Find out the privacy rights and identity theft policies before entering your personal information online.
  4. Actual.  Using these services only provides you with an estimated credit score. They do not provide you with a FICO score which is used by most lenders and credit card companies so you score will be different when pulled by a lender or credit card company.
  5. Scores. Many companies only provide you with one simulated credit score. Creditkarma.com  provides you with a simulated credit score based on data from your TransUnion credit report.  However, to increase your credit score you need to see items on all 3 major credit reports including Experian and Equifax. You can view your credit score if you apply for a mortgage loan or are denied for a student loan, mortgage loan or credit card.
  6. Benefit. There are other ways to monitor your credit score.  You can order your credit score yourself for a fee as many times as you want.  If you are a US Bank or Digital Federal Credit Union customer you can view your credit score for free.  American Express allows customers to get a free credit score that can be viewed for 30 days or purchase the Credit Secure service to monitor your Experian score for $14.99 a month. It is also a waste of time to look at your credit score if you don’t know what the score means.
  7. Products. Many of these sites offer a free credit score in hopes to get you to purchase additional products. 
  8. Fine Print. Many of the sites offer you a free credit score for a limited time and if you don’t cancel the service your credit card will be charged a monthly fee so read the fine print and terms and conditions carefully before signing up.
  9. Scam. Asking someone a few questions can in no way provide a legitimate credit score. Credit scores are determined based on 5 factors:  your payment history, total amount of debt owed, length of credit history, types of credit and any new credit.  Be safe and get your score from the company who created them, FICO. 
  10. Identity Theft. Watching your credit score doesn’t offer any protection against identity theft and is a waste of time.
  11. Credit Repair. If you are in the process of improving your credit you may have to view your credit score and credit report a few times to see if any new negative information has been added that could affect your credit score.
  12. Don’t believe the hype. Don’t get caught up in the hype by advertisers about how credit monitoring will prevent identity theft or save you time and money. The typical fee for credit score monitoring is $14.95 per month. Save yourself money and do it the old fashion way by paying your bills on time, using common sense and reviewing your credit report at least once a year or prior to making a big purchase.
The bottom line is if you have paid your bills on time you will have a decent credit score, if not you have bad credit. If you feel you must watch your credit score, the best tool to use is Score Watch on the myfico.com website for $14.95 per month that provides a what-if simulator which shows you how financial transactions affect your credit score. This website was created by the Fair Isaac Corporation who created the FICO score and is the best authority to use to obtain your credit score.

4 comments:

Brendan Kenny said...

I hear more and more about financial scams around this country. The newest one is the Dinar Corp Scam, this one is a mere mis-perception though. I will never understand where these rumors come from, but it is obviously done by a competitor.

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