Paid vs. Free Credit Score Monitoring – Part I

Consumers have some great options this year for keeping track of their credit reports, and credit scores. Some are free, while other options involve paying a fee. Is it worth the money to use these premium services? Let’s look at a leading option from each category, and see how the benefits stack up.

Before we get into specifics, let’s take a minute to celebrate how far things have come in just the past few years. There was a time when credit scores were mysterious things. Consumers were, for the most part, kept from knowing this vital information about their own finances. We would only learn about our credit score when we got turned down for a loan, or even a job.

The tight control of this information tipped the scales in favor of lenders – many of whom abused the privilege by charging people higher interest rates than their credit-worthiness would otherwise have them paying. Worse yet, it empowered identity thieves, who could wreak havoc on our finances for months before we even knew anything was wrong.

Things have really changed in recent years. Not only do we have new services that give us access to both our credit scores and our credit reports, but some of these services are free. Still other “free score” features are offered by our credit card issuers and financial institutions.

As consumers, we must decide whether the free options are sufficient, or whether the premium services offer enough added value to be worth paying money for. Let’s look at leading options from each column: Credit Karma from the “Free” category; and MyFICO.com from the “Paid” category.

Part I — Free

Credit Karma

Credit Karma is a free, web-based service that’s been around since 2008. As with most “free” things on the Internet, this company makes money by serving up its huge user base to paying customers – in this case credit card and loan companies looking to market their products and services.

This isn’t a bad thing, since users of Credit Karma do, in fact, get free access to credit scores and reports. It’s just worth noting that, as a user of the site, you will be pitched offers from various credit issuers. This is the business model of this service. Credit Karma is not the only game in town, since companies including Quizzle and Credit Sesame also offer free credit scores.

Credit Scores: Credit Karma offers scores from both TransUnion and Equifax (two of the Big Three consumer credit bureaus, the other being Experian). They also offer different versions of these scoring models, including those used by credit card issuers, secured lenders and insurance companies.

Credit Reports: Users of the Credit Karma site get ongoing, updated access to a lot of the information that appears on their TransUnion and Equifax reports, including derogatory items (collections), personal information, reported job and income data and more. By logging into the site frequently, users can keep track of any new items that “pop up” on their reports.

This is a valuable tool in the fight against identity theft, since changes in your report, (such as a new loan application), can be the first indication you have that someone has stolen your data.

Credit Tracking: Credit Karma uses account aggregator Yodlee to monitor your financial accounts, once you give the site permission. This allows you to keep track of activity on your credit cards, loan transactions and balances right on the Credit Karma dashboards.

Community: Credit Karma has a large and active user base. You can research credit cards using their message boards, and find out how others are doing with their credit repair and credit-score building efforts. It’s a valuable resource.

In Part II of this blog, we’ll look at MyFICO.com’s fee-based service offerings. Are they worth the money, given all the good things you get for free at Credit Karma? Stay tuned.