Your credit score is a must-read for your financial literacy.
A credit score is an important factor in determining your creditworthiness. Your credit score can have a huge impact on your financial life.
That is why Canadians have been flocking towards free third-party credit scores services, like Compare Hub and others. These services allow Canadians unlimited access to their credit scores, to help them keep better track of their credit. But is this a good idea?
Why Should You Check Your Credit Scores?
Credit scores are financial instruments that lenders use to evaluate a borrower’s likelihood to make payments on time. It is a way to tell the lenders how you handle debt.
The higher your credit scores (300 – 900) the less risky you’ll seem as a borrower. This helps you qualify for a loan at a better interest rate.
In general, those with credit scores of 650 and above should have no problems being approved for a standard loan. On the other hand, those with lower credit scores may find it hard to qualify for a regular bank loan or gain access to lower interest rates.
Overall, there are many benefits to checking your credit scores, so many consumers are taking advantage of these free credit score services.
Should You Improve Your Credit Score Before Applying For A Loan?
If you don’t urgently need a loan, it’s recommended that you try and improve your credit scores before applying with any lender. This could help you from having to rely on high-cost loans like payday loans and auto title loans.
Similarly, improving your credit can lead to better lean terms including lower interest rates.
Should You Check Your Credit Report?
Yes, and you should check it regularly.
Your credit scores are calculated using the information in your credit report. As such, checking your credit report for inaccuracies, credit fraud, and identity theft is important. It can help you identify potential factors that may be negatively affecting your credit scores.
Are Free Credit Scores The Real Deal?
While there are many free credit score services available, plenty of people are skeptical about whether or not they are accurate or even useful. After all, how can a business make a profit when their products are advertised as “free”?
The Credit Scores You See Is Not The Same As The One Your Lender Sees
The credit score you see through third-party credit score services may not be the same as the one your creditors or lenders will see. While many of these service providers have partnered up with Equifax or TransUnion, the credit scores that they provide are based on their own credit scoring model.
An exception to this is Compare Hub, which provides the Equifax score and lets you see your Equifax credit report.
Similarly, many creditors and lenders have their own credit scoring model, and as such may calculate your credit scores differently than the third-party credit scoring providers. Due to the variety of ways a credit score can be calculated, the score you see is generally not the same as the one your lender sees.
That being said, these services are still quite accurate and can provide you with a good understanding of where your credit stands.
Why Do You Have Multiple Credit Scores?
Since there are a variety of ways to calculate your credit score, multiple versions of your credit score exist. That’s why you’ll often see a different credit score when you check with Equifax or TransUnion than you will with a private company like Borrowell or Credit Karma.
Your “Free” Credit Score is Not Your “Beacon” Credit Score
As we explained above, there are several versions of your credit score. These “free” services provide one type of score, sometimes referred to as a “client” credit score. But, lenders and creditors check something called a beacon credit score. Like your client scores, your Beacon score generally ranges from 300 to 900.
Here’s the biggest difference; your Beacon credit score is only available to businesses, not to individuals or consumers.
So, when you pull your client score from a free or low-cost credit monitoring service (including a credit bureau), it may be higher or lower than the one that a lender or creditor would see if they pulled your credit.
They Use Your Credit Data For Marketing Purposes
Although your client credit score is technically “free” through one of these services, you may be paying the provider with your personal information.
In fact, your personal and financial information can be quite valuable because it makes it easier for them to market other products and lenders to you based on your profile.
Essentially, you’re giving free credit score providers permission to access your official credit report and credit score. They can then use your information to send you marketing materials, loan offers, credit card offers, etc.
They Get You With Other Offers
While some may actually recommend good products that can help you, they may simply push products that will earn them more money. For example, you may be shown offers from service providers with very few requirements. These offers can be particularly appealing if you’ve had trouble getting approved for credit in the past. Of course, the products come with high rates and fees.
Typically, the products that they predict will earn the best returns are pushed upon clients to compensate for the lack of profit that comes from their free credit score service.
Your Client Credit Score Is Not Always Free
There are other ways that a company offering “free” credit scores can make money from you, like monthly subscriptions. Since their side products and services are labelled as optional, they might offer a free trial period to hook you.
After about 30 days, the trial ends and you’re stuck paying a monthly fee or going through an annoying cancellation process.
Where Can You Get Free Credit Scores?
In Canada, you can get your credit score and report from both credit bureaus in Canada. Equifax provides a credit score (and credit report) for free to any consumer. Transunion offers a consumer disclosure (which is a type of credit report) for free to all Canadians. In Quebec, Transunion also offers a free credit score with the consumer disclosure. You can also get your free credit score from third-party websites like CompareHub, Mogo, Borrowell, and Credit Karma.
FAQs Free Credit Scores
Will checking my credit score hurt my credit?
Why is my Transunion and Equifax credit score different?
Are free third-party credit score services safe?
What does it mean when TransUnion is unable to verify my identity?
Is Getting Your Credit Scores For “Free” Really Worth It?
Free credit score providers are not trying to take advantage of you, they are simply offering a service that comes with a few conditions, as most services and products do. While they allow you to look at their version of your credit score for free, they may also use your information to market different products toward you to gain your business.