The New 'Free' Credit Reports: A Good Deal?

If you’re looking for credit information, there have been two types of free: the free report that you’re entitled to by law once a year from the three major credit bureaus and “free” credit reports constantly hyped in television ads that actually require consumers to sign up for a paid service.

Now, there’s a third kind of “free.” A growing number of services provide information beyond what you get from a government-mandated free report without requiring a subscription to a paid service – but they exact payment in another way: by collecting personal information that can be used to target pitches for other products and services.

The newest of these is Credit.com’s Credit Report Card. It joins other services, such as CreditKarma and Quizzle, which promise a clearer view into your credit record – a rap sheet that can determine the success of your mortgage application or the limit on your credit card.

In this age of frugality, that trade-off – sharing some information in exchange for intelligence on your credit rating – might seem like a bargain to some, particularly when compared with services like FreeCreditReport.com, which touts the free report but supplies it only after consumers sign up for a $14.95-a-month credit monitoring service. (Consumers can cancel that service before the end of a free trial period and keep the free report.)

But what exactly do you get with the new breed of “free” services? SmartMoney took a look.

Credit.com’s Credit Report Card offers an analysis of your credit health, using the information in your TransUnion credit report. It’s presented in a format that even the least credit-savvy consumers can understand: You are graded on a scale of A through F in the five categories that make up your credit score, with an explanation behind each grade. You also get an estimated range for five credit scores, including your FICO and VantageScore, as well as the educational credit scores from Experian and TransUnion. (Although most lenders use FICO scores to make credit decisions, and some use VantageScore, the credit bureaus also have their own score algorithms, or educational scores. Read more about this here.)

Credit.com doesn’t give you your actual credit report or score in its Report Card – though the site does offer to sell you one, if you so desire – but plenty of other places do. CreditKarma, launched a little over a year ago, offers a free credit score from TransUnion, along with a credit analysis tool and simulator, which helps you see how certain actions (say, applying for a new credit card or paying late) will affect your current score.

Quizzle.com will give you a free credit report from Experian every six months and a free CE Analytics credit score (an educational score that is not used by lenders, but is similar to the FICO score).

How do businesses like CreditKarma.com and Quizzle.com afford to offer free credit reports, scores or other information that the credit bureaus generally charge for? They pitch partners’ products or sell advertising or credit monitoring services through partnerships with the credit bureaus. Both CreditKarma and Quizzle sell targeted advertising based on the information you provide when you sign up and the data in your credit report. You could be pitched auto or mortgage loans, for example, if they have lower rates than the ones you currently have. The sites can estimate your rates based on the origination date of the loans (information available in your credit report).