In a prior Money Minute blog, we’ve talked about getting a “free” credit report. We touched briefly on apps like Credit Karma, Credit.com, Credit Sesame and others that are popping up. Their popularity has skyrocketed in the last few years, and with good reason. People want to know their credit scores, and people like free. As a current user of credit review apps, let me tell you what I love about them. And why I take some of the information with a few grains of salt.
YES YES YES
- Anything that gets people thinking about their money and spending/saving conscientiously I am 110% for. This is the biggest factor in being wise with your money and if a credit app gets you thinking twice about maxing out your visa for an unnecessary purchase because it would tank your credit score, then the app is doing good work.
- It gives you an idea of how good your score is. Scoring algorithms are as top-notch secret as your grandma’s BBQ sauce recipe. And free credit scoring apps aren’t going to pay the big bucks to use those fancy equations every time you want to know your score. But they’ve created their own generic version which, much like knock off barbecue sauces, is pretty close if not exactly the way you remember it.
- A credit review app gives you a “report card” on how you’re doing with your credit. This is pretty good educational material because it helps people understand that you don’t want to max out your cards, that you do need some form of credit to give your score something to use to grow, and that on-time payments matter. A LOT.
NO NO NO
- The primary way that these apps get their funding is through credit card and loan ads. And they’re not just ads. They’re TARGETED ads. Because the app knows you, your credit score, and your credit history including who you’ve borrowed from in the past. They do everything they can to make the links look appealing and often even show an estimated chance of being approved for the account based on your report. If you’re seeking to establish credit, it can be a handy way to window-shop for terms you like before you have your report officially pulled and reviewed for new credit. But if you’re the kind of person who has to click on all 15 links and apply for everything, the app probably isn’t for you. Having that many inquiries is hurting your score anyway.
- Part of the report card talks about the number of lines of credit you need to have the best credit score. I can tell you from personal experience, I have a pretty good credit score (800+) by having 2 credit cards that I pay in full every month and a mortgage. Cars are paid off. Student loans are paid off. Yet it tells me I need at least 5 more trade lines to improve my score. What?? But go back to the last bullet point. They want you to open more lines of credit because they make money every time you click to apply. Yes, you need at least one open account. But 5 or 10 or more? That’s just straight up misleading. You can have a credit score that gives you top tier interest rates with far less credit than what they tell you you need.
The Apps Only Take You So Far
If I do say so myself, part of being educated about your credit is understanding how the various aspects of your report work together and creating a solid financial plan for improvement. Credit review apps can only take you so far with that.
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