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Is a Free Credit Score Really Free?

by Scott Hannah

Q: My husband and I have recently paid off our student loan debts, so now we’re working on saving for a down-payment to buy our first home. We’re not super savvy with our money, but we do try to watch how much we spend. Other than student loans and credit cards, neither of us has ever paid much attention to applying for a loan or mortgage. However, a friend told us that the bank will only give us a good mortgage rate if we have a good credit score and credit rating. I did a bit of research to find out what a credit score is, but I was still confused so we subscribed to a service that gives us our score for free every month. Is this a good idea? ~Britta

A: Credit scores and credit reports are both tools lenders will use to help them decide if they’ll lend you money, what interest rate they will charge you, and how much they’ll let you borrow. The better someone’s score and overall credit application, the better their opportunity is to borrow a larger amount of money, with more favourable terms and conditions, and at a lower rate of interest.A free credit score isn't always free. Sometimes it's a bit of a gamble.

What is a Credit Score?

A credit score is a number assigned to someone based on a snapshot of specific credit worthiness factors at that moment. It is based on information found on someone’s credit report, which reads much like a history report of how someone has managed their previous and current credit obligations. The credit score number expresses how likely someone is to repay any new money that they borrow today, based on how they dealt with past obligations.

How is a Credit Score Calculated in Canada?

Credit Score Versus Credit Report

While it is not necessary for consumers to know their own credit scores, there is some value knowing what is on your credit report. Because the report is a list of your past and current credit accounts, checking it over once a year for inaccuracies, potential fraud or inconsistencies is a good idea. It can be done for free and is an easy enough process for anyone to do themselves.

Step-by-Step Instructions – How to Get Your Own Credit Report for Free

Despite not needing to know your credit score, many people are very curious about the whole credit scoring and credit reporting system; they want to know their score regardless. As such, over the past couple of years, companies that provide free credit scores are capitalizing on this demand.

Before you sign up with one of these companies to get your score, here are some things to be aware of:

What is a Credit Bureau?

A credit bureau is a company that receives and provides credit information about individuals and businesses. There are two main credit bureau companies in Canada – Equifax Canada and TransUnion Canada, and in addition to providing credit reports, each has its own proprietary system for assigning credit scores.

When you borrow money from a lender in Canada, chances are excellent that you will be a client of one or both of these credit bureau companies. As a client, the lender you deal with is able to obtain information from and supply information to the credit bureau company or companies they deal with.

5 Steps to Re-Establish or Fix Your Credit Rating

Can You Have More Than One Credit Score?

Yes. Any company that gets enough personal financial information from consumers can build a credit scoring system. Your score will even vary between Equifax and TransUnion. Lenders in Canada, however, don’t provide information to individual companies who let consumers buy their own credit scoring information. As such, any company you deal with can only provide you with a score they create, not necessarily the one your lenders will see.

Is a Free Credit Score Legit?

Companies that provide free credit scores typically also provide other services. As they gather your personal information from you to generate your credit score, they encourage you to sign up for other services so that you can receive your score for free, e.g. monthly credit monitoring, insurance against identity theft or fraud protection.

What many consumers don’t realize is that to get the “free” monthly credit score, they must sign up for an ongoing monthly service. It can be cancelled before the end of the free trial period but that can be quite a tedious process. So a word to the wise, always read the fine print before signing up for anything; while “free” can be legit, it can also be too steep a price to pay.

Is an Approximate Credit Score Useful?

The credit score you get from companies other than the main credit bureaus is an approximate score, so you might wonder if that is still useful. It certainly could be a useful indication of what you want to work on or find out more about. Along with your credit score, companies will often provide information to help you improve your credit score. If it’s a reputable company providing the information, it could be very beneficial for you to follow their advice. If you’re not sure if the advice is sound, ask your lender what they think about it and/or what they could suggest to help you get ready to borrow.

5 Things You Can Do to Improve Your Credit Score

The Bottom Line on Getting Your Free Credit Score

When planning to borrow money, more important than knowing your credit score is having your financial house in order. This means having a budget and actively using it, putting money into long and short-term savings, and using credit wisely. Your credit score will change often, and like any other tool, when used correctly it can serve the right person (your lender) well. You are, however, much more than just a number. Resist hanging your self-worth on three digits; practicing sound money management skills is much better for your overall well-being.

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