Credit Monitoring is Everywhere

Today, getting a copy of your credit report and credit score for free is a trivial matter. You can acquire your full report from each bureau once each year from annualcreditreport.com. Your right to this annual report is ensconced in Federal law. In addition, most banks provide their cardholders with at least a free monthly score update and, for many, a full monthly credit report from one bureau.

The trend for free credit reports and scores was launched by Credit Karma in 2008 (following the company founding the prior year). A slew of competitors have launched to provide similar services (such as Credit Sesame or Wallethub), and many traditional financial services marketplaces added credit report capabilities (such as LendingTree, Bankrate, or NerdWallet)

In addition, when a personal information breach occurs, the company experiencing the breach often provides free credit monitoring (which sometimes includes reports) to their affected consumers.

Finally, some credit cards come with monitoring services, including most Mastercard products, which provide a proactive service as part of the core product offering.

I lost track, but I personally have more than a dozen free ways to access my score, report, and credit monitoring. I might receive a half-dozen alerts when something happens, like a new inquiry. When nothing happens, I also receive some alerts.

It’s all a lot of noise.

Many of these free services offer you access to your VantageScore. VantageScore is both a score and a company. The company is a joint venture owned by the three major U.S. credit bureaus: TransUnion, Equifax, and Experience. While the use of VantageScore by underwriters in determining credit has increased in the past few years, the traditional score that people are thinking of when they talk about their credit score is their FICO score. The Fair Isaac Corporation develops the FICO score (of which there are many different variations). FICO scores are based on the same bureau data but use a different algorithm.

It’s also important for people to realize that each credit report from each bureau often varies. The variances occur because the data reported to each bureau is not the same. While major lenders such as Chase for your credit card or Bank of America for your mortgage may report to all three bureaus, many challenger cards or small lending companies do not report to all three bureaus. It costs money to report to a bureau, so this is a cost savings measure. In addition, when you apply for credit, the lender (or another provider, like your postpaid cell phone carrier) may only query one bureau in many cases. (Again, it’s more common to query all three bureaus for large loans like mortgages.)

Both FICO and VantageScore have different score versions and models. While traditional FICO consumer scores ranged from 300 to 850, some new versions of each go to 900 (FICO) or 990 (VantageScore).

Between different types of scores, different bureaus, etc., it’s estimated that a single consumer could have more than 60 different credit scores.

At one point in my career, I carefully tracked all my free scores from all providers and routinely noticed a huge variation between 730 (Vantage) and 830 (FICO) in the same month. All good to excellent, but huge variations.

Even though I have excellent credit, I often receive emails from the free score systems encouraging me to do something to earn ten more points! Or, the particular message that prompted me to start this rant was that I was warned that my utilization (the amount of my open credit that I am using) had gone up! The fact was it went from 3.5% to 4.1%. Having utilization of more than 30% is traditionally seen as a warning sign, so my minor change isn’t meaningful (and probably is due to paying for summer camp).

The bureau scores aren’t able to differentiate between what you carry on your card and what you pay off (I may be using 4%, but it’s all paid in full each month.) I find the VantageScore particularly sensitive to changes in utilization that I don’t think reflect valuable insights.

Last week I wrote about credit builder cards, designed to help people with bad credit or no credit to build credit files so they can qualify for more access to credit at better rates.

What is a consumer supposed to do when it’s this complicated? Despite the reams of content on this topic, I routinely encounter people with misconceptions about credit. Free score and report data have gone a long way to unlock credit awareness and confuse people further.

What it comes down to is:

1. Don’t apply for too much credit too fast
2. Always pay the minimum amount or more on time each month
3. Don’t use more credit than you can afford

If you do that, I’ll give you a 100 on the CardsFTW scoring system.

Deal of the Week: Robinhood Acquires X1

The fintech world is abuzz with news of last week’s $95 million all-cash acquisition of challenger card X1 by Robinhood, the stock trading giant. X1 developed a premium-style card for the millennial and younger consumer with a flashy metal card, some alternative underwriting, and lucrative rewards (provided you wanted to get a gift card from a listed merchant).

Rumor has it that X1 had a decent, but not substantial, user base. The acquisition is a win, but not a home run at $95M compared to just over $60M raised. Folks will make money after fees, debt, and venture preferences but probably keep working. (Nothing wrong with this, I love a good base hit.)

I didn’t think X1’s reward structure or features were very compelling, but they did take the time to build their card infrastructure from the ground up and did not use a program manager. If a company like Robinhood wants to bring a card in-house, it is compelling to have that infrastructure built out and have some unique technology assets.

Few fintech challenger cards own their infrastructure through and through versus using a program manager like Deserve. I’m unsure who else might want a card like this, but I can see this creating excitement and deal momentum in the space. Let’s keep watching.

Not A Fintech Resources

My friend Aaron Frank started an open-source website for fintech builder resources a few years back called notafintech.co.

I am a proud contributor to this repository and recently added a few new policy documents I developed for use with my clients at Totavi. The site is a tremendous community resource, and I encourage anyone building a card product to check it out. Drop me a line if you want help with implementing or customizing things.

Me, Elsewhere

This week in Me, Elsewhere, I want to share a longer-form post I contributed to African fintech Stitch Money’s new Flow blog. The blog covers payments around the world. I write about using payments by face, palm, and other biometrics for my contribution. Check it out.

CardsFTW

Thanks for reading CardsFTW, a debit and credit newsletter by Matthew Goldman. Matthew is the founder of Totavi, LLC, which provides GSD Product Consulting with real operational value. Visit totavi.com to learn more and engage us.

* Indicates a company with whom Matthew Goldman or Totavi, LLC has a financial relationship.