There IS such a thing as a free credit score
By Holden Lewis • Bankrate.com

E-Loan is offering free credit scores online, allowing consumers to find out how lenders judge them. Credit scores are available on other Web sites, but consumers have to pay for them.

Lenders decide whether to lend you money, and at which interest rate, based on your credit score, which is a number between about 300 and 900. The higher your score, the better the terms you can get on a mortgage, credit card or auto loan.

Until recently, the companies that calculate credit scores kept them secret from consumers because, they said, ordinary people can't understand them or would misuse them. But beginning July 1, California law will require credit bureaus to tell Californians their credit scores upon request.

So the three biggest credit bureaus will sell consumers their credit scores. Equifax, one of the three giant credit bureaus, sells scores for $12.95 on the consumer area of its site. The product, called Score Power, includes a look at the credit report, which forms the basis of the credit score.

The other two big credit bureaus, Experian and Trans Union, plan to sell scores online by California's July 1 deadline. The scores probably will be accompanied by credit reports.

E-Loan's credit scores, on the other hand, are free, although they come without a credit report.

Credit score crusade
Chris Larsen, E-Loan's president, embarked last year on a crusade to let people see their credit scores. Last year, E-Loan supplied free credit scores for about six weeks until Equifax stopped supplying E-Loan with scores. Equifax did so at the request of Fair, Isaac and Co., the company that developed the secret scoring formula that credit bureaus use.

Fair, Isaac's product, generally called a FICO score, is the gold standard of credit scores. E-Loan uses CreditXpert Credit Score, based on a formula from Neuristics, a competitor of Fair, Isaac's.

After E-Loan was prevented from distributing free credit scores last year, Larsen successfully lobbied the California legislature to force credit bureaus to reveal scores to consumers. He expects members of the U.S. House and Senate to introduce similar bills this year.

What's in a score?
I got my free score from E-Loan's Web site and on the same afternoon bought a FICO score from Equifax's site for $12.95. The E-Loan score was 10 points higher, which was fine -- it's not unusual for one person's scores from different credit bureaus to differ by 50 points.

The 10 points seemed to make a big difference in my standing in comparison with other people. E-Loan said my credit score of 786 ranked higher than 90 percent of U.S. consumers. Equifax said my score ranked higher than 74 percent of U.S. consumers.

In its explanation of my credit score, Equifax gave me pointers on how to improve it. The explanation said that the main drag on my score is that I have too many charge cards. It didn't suggest which cards to cancel or how much my score would rise if I canceled a card or two.

Equifax also told me that my balances were too high, that I have too many accounts with balances, that I'm not paying down my balances quickly enough and that I should lose 12 pounds.

Just kidding about the 12 pounds.

E-Loan's explanation said my balances were too high, lowering my score. It didn't get more specific than that.

When I told this to Larsen, he faxed me a sample credit score and analysis for a hypothetical person with a score of 674. That one gave specific advice: pay $1,000 on one card and transfer money from one card to another. It said the first action could add 6 points to the credit score and the second action could add 3 points.

Larsen believes that consumers eventually will be able to get that kind of advice from many sources and that consumers will manage their "debt portfolios" just as investors manage their investment portfolios. They'll know their credit scores and what interest rates and fees to expect.

-- Posted: May 9, 2001