CreditKarma: Never Pay for Your Credit Score Again!

I feel like a moron. Just two weeks ago I paid $14.95 for three-month access to my credit score. Let me tell you a little story about how this began:

My neighbor, four doors down, has the same name as me, with the minor difference of a different middle initial. Her middle initial, happens to be that of my maiden name. Because I hyphenated my last names for the first few years after I was married, I have a registered “credit alias” that is exactly the same as her name, and a mailing address just a few digits off.

That really isn’t too much of a problem, except that because our addresses our so similar, and she doesn’t pay her bills, her collections accounts arrive on my credit score routinely.

Four more of these recently appeared on my credit report and were discovered by my mortgage bank during my refinance. I shot off another letter to TransUnion last week hoping to intervene before my rate-lock was threatened.

I’ve got to say, I’m pretty tired of paying for my own credit score. Yes, you can get a credit report free annually, (just one) but it’s far more helpful in a situation like mine to check it more frequently than that.

Finovate 2009 presenter, CreditKarma may be the solution people like me are looking for. It provides constant, free access to your credit score as well as some other features.

You can see how your credit score stacks up to those in your age range, state, or even email domain. You can also use their calculator system to see how adjustments in your financial situation would affect your score in theory. Would it help or hurt you to close a high-interest account, extend your credit limit, or even file for bankruptcy? I was surprised to know that paying off my credit card balance entirely will actually hurt my score, and that optimally I should be carrying some credit card debt. (Thanks anyway, but I’ll still be going debt-free). There’s a screen to view your long-term credit score over time, which will be very helpful for tracking identity fraud or excessive credit inquiries (which cost you points).

The site is free because of sponsorship (think Mint), but I found the sponsorship to be rather oppressive and cluttering. However, not so much that I won’t be using CreditKarma. Also, be reassured, that they fund the site through ad partnership only, not through selling your personal info.

There are some features that I especially like including a credit card debt calculator which allows you to either enter your projected monthly payment and calculate a payoff date, or enter a date and it will show you your estimated monthly payments. Adding a little extra value to this calculation is their friendly nudge that shows you how much you can cut your payoff time by paying just a little bit more.

At this time, CreditKarma is only showing credit scores from TransUnion, and not Experian and Equifax, but in my experience, TransUnion’s scores have always been the lowest (They’ve also been the only ones routinely confusing my neighbor’s accounts with mine).

Because CreditKarma is requesting your score on your behalf rather than for a lender, your credit score won’t be affected by the inquiry.

Jessica Ward is a freelance writer and blogger located in Seattle, WA. She blogs on finance, credit, family and food at http://www.pennywisefamily.blogspot.com/.

Credit scores on Prosper and how to get a free credit report: Part 2 of 2

In part 1 of this article, I discussed the distribution of credit scores, how credit scores are used on Prosper, and the distribution of borrowers on Prosper. In this article I will describe how you can obtain a free credit report, dispute a claim, and why it is important to have good credit.

Free Credit Report. In 2003 congress passed an amendment to the Fair Credit Reporting Act (FCRA) requiring each of the consumer reporting companies (Equifax, Experian, and TransUnion) to provide you with a free copy of your credit report at your request every 12 months. You can request this report by phone, by mail or on the web at AnnualCreditReport.com. The Federal Trade Commission has created a website to inform consumers of their options, as well as to warn consumers about impostor websites and services.

At AnnualCreditReport.com you have to fill in a form, provide them with your social security number, and answer some questions to prove your identity. After that they walk you through obtaining one credit report at a time from each of the three agencies. Each time you switch to a new agency you have to prove your identity again by answering questions based on information they have on file. Once you have completed the process you will have a report from each agency that shows your credit accounts and several years worth of payment history. What they don't provide you with is your actual credit score number. You have to pay if you want to see that. [Edit from Tom: See note at bottom on how to get Experian credit score for free as well.]

After looking through the data, it is possible that you will find an inaccuracy in your report. You will want to check all three reports because they will all be different. If you do find a mistake, don't fall for advertisements from companies that claim they can help you clean up your credit, quickly improve your credit score, or remove negative information such as late payments or bankruptcies from your credit record. Companies that advertise these services are usually fraudulent or are charging you fees (sometimes very expensive fees) for something that you can easily do yourself for free.

Disputing a claim. The websites for each of the consumer credit companies offer instructions for disputing a claim. They can be found at:

• Disputing a claim at Equifax
• Disputing a claim at Experian
• Disputing a claim at Trans Union

If you dispute an item on your credit report the credit agencies are required to contact the lender and verify the disputed information. They are then required to let you know whether they were able to verify the information and who they talked with at the lending institution. If they cannot verify the information they are required to remove it from the report. My advice is to actively dispute any items that you know are incorrect. However, if you have legitimate negative information on there then don't bother to dispute it. The credit agencies do make mistakes, but they are also pretty good at verifying the original information, so if the negative information is correct than just work on improving for the future. As the negative information gets older your credit score will improve.

Identity theft. If in this process you discover you have been the victim of identity theft you can find information on recovering from identity theft at the Federal Trade Commission's website.

Free credit check from Prosper. Okay, so now you have your free credit reports and it will be a year before you can pull another official free credit report. What can you do in the meantime to keep an eye on your credit? Well, you can continue to get monthly reports at a cost of $9.95 per report or sign up with third party monitoring services for a similar fee. But, what if you want to do it for free? One lender on Prosper hopes to do just that. His plan is to routinely go part way through the process of creating a listing on Prosper as a borrower, until he gets to the point where it shows his Experian credit grade, and then cancel the loan process. This only works with Experian, but he hopes that by doing a similar process at other peer to peer lending sites he can check with other agencies. He figures that "it is a free and easy way to make sure my identity hasn't been stolen (at least by someone who applied for an account that checked Experian). I will probably sign up at Lending Club as well to monitor my Transunion report. If Zopa ever launches and uses Equifax I will be all set." This may work to some extent but it will not actually provide you your credit score (just Prosper's credit grade) or the detailed information that comes with a normal credit report.

Cost of poor credit. So, why all of the worry about checking and monitoring your credit? If you have got this far in the article, you probably understand the importance of having good credit. Having poor credit increases the amount that you have to pay for home and car loans. But what makes it even worse is that it can ruin marriages, contribute to poor health, and can even affect what job opportunities are available to you. One analyst at TheStreet.com suggested that having a poor credit score could cost you over $1 million dollars.

If you do monitor your credit, you should be aware that you may experience a significant change in your score this fall. Don't panic right away, it could just be due to FICOs change in their scoring algorithm. FICO is adding two additional categories on the low end of the scale, and eliminating the benefits of being an authorized user on a credit card with someone that has good credit. This has the potential to negatively affect tens of millions of scores, so be on the lookout for that change.

Update from Tom: Experian runs freecreditreport.com which provides users with a free credit report and credit score. This is seperate from AnnualCreditReport.com which provides you with one free credit report per year (without score). To get your free detailed credit report on Experian's freecreditreport.com you actually sign up for the Triple Advantage Credit Monitoring program which costs $12.95/month but if you cancel within the first 30 days it is free.