Why You Shouldn't Trust Your 'Free' Credit Score

One score among dozens.

We all know the old saying, "You get what you pay for."

While some things defy this statement, they're usually the exceptions that make the rule. In general, if you opt for the cheap -- or free -- version of something, it simply won't be as high quality as the paid version.

Take, for example, free credit scores.

A good tool, but limited

Keeping tabs on your credit score is an important part of maintaining healthy personal finances. Pretty much everything requires having good credit these days, so it's vital to know where you stand.

Free credit scores can be a great tool for gauging the overall health of your credit profile. If your scores drop significantly, it's often a sign that something is wrong and needs your attention. They can also be handy for seeing if your credit building efforts are paying off.

But where free credit scores fail is when folks use them as a metric for large purchases, like auto loans and mortgage loans. In these cases, your free credit score simply isn't up to the task.

The model matters

The main problem with relying too heavily on free credit scores is that the model used to generate your free score is rarely the same as the models used by lenders when you apply for a loan or credit card.

What does this mean? Well, believe it or not, you can actually have dozens of different credit scores. And the actual number you receive can vary based on the scoring agency, the credit bureau, and the model that's used to generate your score.

The scoring agency

Credit scores aren't typically created by banks, the government, or even your creditors. Instead, most credit scores in the U.S. come from one of two scoring agencies: FICO and VantageScore.

FICO (short for Fair Isaac Corporation) is a publicly traded company founded in the 1950s. In many ways, FICO is the creator of the credit score. VantageScore, aka VantageScore Solutions, was actually created by the three credit bureaus in the 2000s.

While both agencies calculate your credit scores using the same information sources -- mainly your credit reports -- the similarities don't extend much further. Everything varies by company, from how much credit history you need to how various factors in your history are weighed and scored.

In general, creditors are more likely to use FICO credit scores. That said, VantageScore has been gaining popularity (and market share) over the last few years. Non-financial institutions, such as rental agencies, are the most likely to use VantageScore, but many credit card issuers and some installment loan companies are also using VantageScore instead of -- or in addition to -- FICO.

The credit bureau

The credit scoring agencies use information from your credit report to calculate your credit scores. Credit reports are created and maintained by the credit bureaus.

There are three main consumer credit bureaus:

1. Equifax
2. Experian
3. TransUnion

Each credit bureau maintains its own version of your credit report. Because the bureaus are independent entities, they don't -- and aren't obligated to -- share information with the other bureaus.

This means your credit reports can contain different information with each bureau. As such, your credit score can vary based on which bureau supplied the information used to calculate that score.

The specific model

Even within specific scoring agencies, you can have a host of different credit scores -- and just not because of the credit bureau they reference. No, it can also vary based on the specific scoring model that gets used.

VantageScore is currently on its fourth scoring model, VantageScore 4.0. Each new iteration uses slightly different criteria to generate your score.

FICO also has different model numbers that get periodically updated. Currently, they're using FICO Score 10.

But FICO also offers more specific models tailored to different industries. For example, there is a FICO score designed for auto lenders -- the FICO Auto Score -- as well as one designed for credit card issuers known as the FICO Bankcard Score.

Making matters even more complicated, it's the lenders who decide which models to use. And they may not always use the most up-to-date model. So, a creditor could very well use a FICO Score 8 model (or even older) instead of the latest FICO Score 10.

Take free scores with a grain of salt

All of the above can be boiled down to this: The free score you receive from your credit card or mobile app is unlikely to be the same score that the lenders use. So don't rely 100% on that score to tell you if you're ready to make certain financial moves, such as applying for a mortgage.