How to score a free credit score

Do you know your credit score? According to industry experts, an estimated 45 to 60 percent of Americans don't have any insight into this important number. Even worse, U.S. consumers scored only 60 percent on credit score knowledge in a January 2011 poll conducted by the Consumer Federation of America. That means a staggering number of Americans are uninformed about an essential financial factor that can determine everything from credit card interest rates to eligibility for loans.

Despite how easy it has become to receive copies of credit histories and credit ratings, most people remain ignorant of their FICO scores - and of how they affect the ability to secure a mortgage, open a credit card account, or even, in some cases, land a good job.

Fortunately, new legislation goes into effect this July that will make it easy to obtain your credit score for free if you are rejected for a loan or refused the best credit card rates. Read on to learn more about the importance of your credit score and how you can check it for free.

Free annual credit report doesn't include credit score

Many consumers buy into the myth that they are entitled to check their credit score for free once a year. In fact, you are entitled to receive a free credit report by mail from each of the three major credit bureaus - Equifax, Experian, and TransUnion - but that free credit report does not include your FICO credit score.

The basic credit report that can be requested by mail for free shows your credit history and current debt. Although it enables you to catch any inaccuracies that may have been reported by a lender or to spot incidences of identity theft, it won't include your credit score - the number that lenders, insurance agencies, landlords, cell phone companies, and even employers use to determine whether you are a reliable or risky prospect.

When a free credit score isn't free

If you want to get your FICO score from the major credit bureaus, or through any of the dozens of websites and financial groups that offer this service, it usually costs $20 to $25. Some groups promise a free credit rating, but it comes included as a freebie with other, more costly, services that may not always be made clear at the outset.

Barry Paperno, Consumer Affairs Manager for myFICO, cautions against using "free" credit score services: "The axiom that you get what you pay for holds true here. Generally, scores offered 'free' to consumers are lures to get the consumer to subscribe to credit monitoring and ID theft prevention services, which can cost $100 to $200 per year."

John Ulzheimer, President of Consumer Education at SmartCredit.com, concurs. "Credit card companies, and other lenders for that matter, are always looking for ways to further monetize their customer base," he says. "Credit reports, credit monitoring services, and credit scores are all sold by many lenders to their customers as a way to increase revenue."

Can't get best credit card rates? Check your credit score for free

So what do credit experts suggest you do to stay aware of your credit score without spending unnecessary money on credit reports or credit monitoring? Thanks to changes made as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010, you will soon be able to request a free copy of your credit rating - complete with credit score - from a credit card company or other lender if you are rejected for credit or are considered "high risk" and not offered the best credit card rates.

As of July 1, 2011, it will be possible to find out not only what parts of your credit history may be helping or hurting you, but also the actual FICO score that lenders are seeing when they check your credit - and you may even be able to identify why the best credit card companies and mortgage brokers are rejecting your credit applications.

Credit card companies required to explain adverse decision

According to Ulzheimer, "They don't have to give you the exact reason why you were rejected or adversely approved, but they do have to tell you where they got the data and some general reasons why your scores weren't better."

Although credit reports from credit card companies and other lenders may look a little different from a report sent by a credit bureau, Ulzheimer says, "The reports are coming from the same core source regardless of where you get it. There are only three companies who maintain credit report information: Experian, TransUnion, and Equifax. The only real difference is the look of the report. Other than that, it's essentially the same data."

Free credit score when you apply for a mortgage

An additional option exists for consumers who want to receive a free credit report, complete with their FICO score: mortgage lenders. Whether an application is rejected or approved, the majority of mortgage lenders will furnish their clients with a copy of their credit score at no charge. This free service enables consumers to confirm the accuracy of their credit history and learn about their credit rating as they apply for what will probably be the biggest loan they will seek in their lifetime.

Will your ability to access credit scores impact the way banks approve you for their best credit card rates or the way in which private lenders approve loans? Probably not, but this may make a real difference in how accessible credit scores are to customers who are rejected, or to those who are working to rebuild their credit to get the best rates on credit cards.