I've never understood why the credit score and credit monitoring business is so huge. They've attempted to make sexy something that is a) not sexy at all and b) quite straightforward.
If you always — or even mostly — pay your bills on time, don't have any delinquent accounts tarnishing your record, and you keep your credit utilization ratio low (by low, I mean no more than 30% to 35% of your available credit is being used)... you will have a good credit score.
Now, if you have payments 60 days or more past due, or you have other forgotten obligations (a car loan you've defaulted on, etc.), or your credit utilization ratio is very high... you will not have a good credit score.
Having a good credit score matters: nearly all of the top-tier credit card deals in our comparison portal require applicants to have good — or excellent — credit.
In this case, it is quite helpful to know your score... and exactly where you stand... before applying. If your score is not where you want it to be, you can apply for a less high-end card (there are, of course, plenty of offers online for those with "average" credit) — or you can take some simple steps, such as paying down your existing balances, to improve your credit utilization ratio, and thus your credit score.
Now that you know why a credit score might be useful, don't pay for something you can get for free: I recommend using CreditKarma.com — signing up on their secure form took me only a minute, and within a few clicks I had access to my actual credit score. (Note: I have no financial relationship with CreditKarma.)
Additionally, CreditKarma has an intuitive "credit simulator" tool which lets you see how certain actions — such as applying for a new credit card, or paying down an old balance — might impact your score.
And yes, the credit score service over at CreditKarma is actually free and legit. So far, they haven't asked for my credit card number; they haven't tried to "up-sell" me into any sort of monthly credit monitoring service I don't need; they aren't annoying.
Some people in the personal finance world have wondered why CreditKarma can offer something that is seemingly "too good to be true." The short answer, of course, is that the service is not too good to be true: there is a pretty simple business model which allows CreditKarma to provide users with a free credit score and other tools. You see, they (politely) recommend balance transfer deals and credit card offers that might interest you, based on your credit score range. I assume they have marketing relationships with some of these banks, thus making their free service viable.
Finally, if you also want to see your credit report — this is the list of actual accounts you have open and closed, length of the accounts, payment history, etc. — you can access your credit report for free from the three major credit bureaus once per year, by law. Go to annualcreditreport.com to do so. This won't give you your score, however, which is why CreditKarma is so useful for those of us who use credit.
- originally appeared in slightly different form on Credit Card Outlaw.
