A better free credit score service

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(MoneyWatch) It's been my observation that those "free offers" to obtain your credit score often end up being anything but free. In fact, one such offer took me weeks to cancel and reverse charges as, ironically, they threatened to ding my credit if I didn't pay for a service I had already canceled. So imagine my skepticism when I stumbled upon CreditKarma.com. What I learned, however, is that this site provides far more than your credit score and really is "free" to the user.

A little background

To be clear, credit laws allow you to go to annualcreditreport.com to get your credit report once a year from each of the three main credit bureaus, Experian, Equifax, and TransUnion. But if you want your actual credit score, you'll have to pay more. Each of these bureaus has proprietary rating methodologies that rank your credit on a scale that goes up to 850. This is similar to your FICO, score which also uses the 850 scale.

Although you may think your credit score is only important if you need to borrow, many purchases can cost you more if your credit score is low. Auto insurance, for example, is more expensive if your credit score is low. That's because insurers have proven the link between credit scores and insurance claims.

My shocking experience

After signing up for CreditKarma.com, without giving my credit card number to them, I was absolutely shocked to see my TransUnion credit score pop up. I also got a Vantage score and an auto insurance score. The Vantage score is on a different scale, and is a joint project between three credit bureaus aimed at consumers. I was so shocked, that I didn't believe it at first.

But there it was, plain and simple. I had actually received my credit score and detailed information on my loans and credit cards, all for free. Even better, the site had this impressive credit simulator which, as the founder explained to me, was developed jointly by CreditKarma and TransUnion. With this simulator, you can see what changes are estimated to do to your score.

What shocked me the most was what I didn't see. I saw nothing that popped up telling me I'd have to pay money if I wanted to see more or see the my credit updated regularly. Sure, there were advertisements, but I actually liked them because they were targeted to my specific situation.

I was so impressed that I spoke with Ken Lin, CreditKarma's founder. Lin explained that he made a decision early on that all revenue would come from advertisers. He confirmed that there wasn't a way for the consumer to pay one penny directly to CreditKarma. I found that pleasantly refreshing. Lin also explained that they do not sell your personal information and only send one email a month to subscribers.

Lin explained that the three consumer benefits from the site are:

-- Obtain credit score
-- Education on how to improve your credit score
-- Credit monitoring

When you sign up at CreditKarma, you automatically get free credit monitoring. That means they will send you an email whenever there is a major status change in your credit, such as a new credit inquiry or delinquent payment. Those are services that can cost you a bundle every month elsewhere.

CreditKarma isn't alone in providing these solutions. I tried out CreditSesame.com and Quizzle.com. They also gave me a free credit score and report. While both very good, I found CreditKarma provided more information.

My advice

Whether you like it or not, credit scores are a reality and have a large impact on your personal economics. Take your scores very seriously. You now have at least three options to get this information without shelling out a penny. As for me, I plan on visiting CreditKarma regularly.


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    Allan S. Roth is the founder of Wealth Logic, an hourly based financial planning and investment advisory firm that advises clients with portfolios ranging from $10,000 to over $50 million. The author of How a Second Grader Beats Wall Street, Roth teaches investments and behavioral finance at the University of Denver and is a frequent speaker. He is required by law to note that his columns are not meant as specific investment advice, since any advice of that sort would need to take into account such things as each reader's willingness and need to take risk. His columns will specifically avoid the foolishness of predicting the next hot stock or what the stock market will do next month.

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