Credit-Watching Consumers Tap Phones to Check Scores for Free

Consumers shopping for a loan or looking to rebuild their credit can use a free mobile application to monitor changes in their credit scores.

The application, for Apple Inc.’s iPhone, updates users’ credit scores from Experian Plc once a month, in addition to details about how much of their available credit they’re using and their home value, according to a release today by Credit Sesame Inc., which also provides free scores through its website.

“If you’re trying to rent an apartment and the landlord or agent wants to know about your credit, you can go through our mobile app and quickly pull your information and say, ‘Here’s what my credit looks like,’” said Adrian Nazari, founder and chief executive officer of Sunnyvale, California-based Credit Sesame.

Financial-services providers such as mortgage and credit-card issuers use credit scores to gauge the risk of lending to a prospective borrower. The numbers generally are calculated from information gathered by credit bureaus Equifax Inc., Experian and TransUnion Corp., and affect consumers’ ability to get mortgages, credit cards and insurance products, as well as the rates borrowers and policyholders pay for them.

U.S. consumers’ average credit score was 661 in November, down from 667 in January and 676 in February 2009, according to scores in the user base of Credit Karma Inc., which also offers free scores through its website. Credit scores generally range from 300 to 850, though that may vary depending on the provider.

Consumer Debt

“It really takes a while for all the unemployment and the foreclosure numbers to seep through the economy,” said Ken Lin, chief executive officer of San Francisco-based Credit Karma. “Credit scores are generally a lagging indicator, but credit-card debt tends to be more forward looking.”

Outstanding revolving consumer credit fell by about $176 billion to $792 billion during the three years through October, according to data from the U.S. Federal Reserve. Outstanding revolving debt increased in both September and October.

Credit Karma gives users free scores from TransUnion, including scores that may be used by auto-insurance providers when setting rates, and the VantageScore, which is based on a model developed by the three reporting agencies and that ranges from 501 to 990. The site, which has almost 4 million users, earns revenue through advertising, Lin said.

FICO Scores

Consumers should be aware that Credit Sesame and Credit Karma don’t give them a FICO score, said Anthony Sprauve, spokesman for Minneapolis-based FICO, formerly known as Fair Isaac Corp. The 100 largest U.S. credit-card issuers and 90 of the largest 100 U.S. financial institutions use FICO scores, he said.

“The user should be aware that this is not the precise score that the lender will be using if you’re applying for credit, but it’s useful in that it will give you a general idea of where you stand,” said Evan Hendricks, author of the book “Credit Scores & Credit Reports.”

FICO’s Score Watch monitoring product sends alerts for unexpected changes to users’ credit reports or scores, and costs $14.95 per month, according to the company’s website.

Consumers should check their reports every three months, particularly if they’re planning to apply for credit in the next six months or sooner, Hendricks said.

Dodd-Frank Disclosures

Since July consumers who are denied a credit-card or auto loan are entitled to free copies of their credit scores, under expanded credit-score disclosure rules that were part of the Dodd-Frank financial overhaul passed in July 2010.

Credit Sesame is planning to introduce an application for Google Inc.’s Android operating system and has not yet set a date for doing so, Nazari said. The firm’s website displays credit-card, mortgage, or other product offers to users depending on interest they’ve expressed when signing up for the site, and earns a fee when a consumer takes out a new loan or refinances an existing one through one of the site’s offers. The application will display similar promotions.

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