How Accurate Is Credit Karma? And Is It A Legitimate Source Of Information?
The article attempts to provide the most relevant information on Credit Karma and credit scores.
Credit Karma, founded in 2007, is a financial services company based in San Francisco that provides free credit scores to the general public. According to the company, consumers who use Credit Karma’s website or mobile app will always do so for free.
Nevertheless, how reliable is Credit Karma? Credit Karma is a service that is extremely popular because it provides free credit reports and free credit scores.
Credit Karma has risen to become one of the most widely used online services for checking your credit score in recent years. The website is the quickest and one of the most convenient ways to obtain your free credit score.
Suppose you have been looking into purchasing a new home. In that case, you are probably aware that your credit score will be a significant consideration. To be eligible for home financing, you must have good (or at least decent) credit.
Using a credit monitoring service such as Credit Karma is an excellent way to keep track of your credit rating. For years, commercials for this service have been airing on various platforms, including YouTube, online searches, and even television networks. So, what exactly is the situation? Is Credit Karma a reliable or even legitimate source of information?
However, this also leads to the question, “How accurate is Credit Karma?”. The information in this article will be of great assistance if you are in the same situation and want to learn more about the accuracy of the service provided by this company.
How does Credit Karma work?
Credit Karma is most well-known for providing free credit scores and credit reports to consumers. On the other hand, it positions itself as a website that offers its users the opportunity to build a better financial future.
To use Credit Karma, you must first provide the company with basic personal information. It usually includes just your name and the last four digits of your Social Security number.
Credit Karma then uses your permission to access your credit reports, compiles a VantageScore, and makes it available to you.
Is Credit Karma’s credit score accurate?
In an interview with Credit Karma, Investopedia inquired why consumers should put their faith in the company to provide them with a credit score that accurately represents their creditworthiness.
“We provide VantageScore credit scores that are not influenced by either of the credit bureaus. VantageScore was developed in collaboration with all three major credit bureaus and is a transparent scoring model. Credit Karma believes Vabtagescore will help consumers understand how their credit score changes.
Credit Karma does not collect information about you from your creditors. The credit scores and reports you see on Credit Karma are based on your credit information.
The credit is the one that TransUnion and Equifax report, two of the major consumer credit reporting agencies. Because these scores are not estimates of your credit rating, they are accurate and dependable.
Is Credit Karma safe?
Credit Karma is considered one of the most secure credit monitoring services available. The ratings alone speak volumes about the level of security they provide. Excellent encryption and two-factor authentication are used to safeguard your information.
They also offer credit monitoring specifically to assist people in determining whether or not their identity has been compromised. So, yes, it is entirely risk-free to use.
Where does the information on Credit Karma come from?
Credit Karma obtains its credit scores and credit report information from TransUnion and Equifax, include the three major credit bureaus found in the United States. Credit Karma uses this information to create its own VantageScore, which is displayed on its website.
Your score on Credit Karma should be the same as or very close to your FICO score, which is what any prospective lender will most likely check to determine your credit worthiness.
What are the types of Credit Scores available?
In the world of consumer credit, several different credit scores can be used by creditors to assess the risk of a new borrower before extending credit to them.
In any case, information such as an individual’s payment history, the number of accounts they have open and in use, the credit utilization percentage, and any negative credit issues are all taken into account to calculate one’s credit score.
In most cases, a three-digit number ranging from 300 to 850 is generated using an in-depth algorithm applied to the details in question. When a new credit application is submitted, the higher the credit score, the more likely the individual will be perceived as a responsible borrower.
While Credit Karma advertises that it provides a free credit score to anyone who requests one, the company offers access to an individual’s VantageScore 3.0, not the FICO Score that the vast majority of lenders use to evaluate a person’s creditworthiness.
The VantageScore 3.0 is similar to a FICO Score in terms of the credit score range. It uses some of the same information as a FICO Score; however, how the information is used to determine one’s credit score differs.
When Credit Karma users view their credit score information on the website or in the mobile app, they view their VantageScore 3.0 credit score.
Credit Karma, in addition to using a different credit score than the majority of lenders and financial institutions, only provides access to two credit scores from two other credit reporting agencies, according to the company.
Experian does not currently provide users with a credit score of any kind; instead, users can see their Equifax VantageScore 3.0 and their TransUnion VantageScore 3.0, according to Credit Karma.
Given that all three credit reporting agencies provide individual consumers with credit scores, the absence of the third may result in Credit Karma users receiving a slightly inaccurate picture of their credit profile.
What is FICO and vantage score?
When most people think about their credit score, whether they realize it or not, they feel about the FICO credit scoring algorithm. The Fair Isaac Corporation first introduced FICO credit scores for consumers in 1989.
Since then, the company has worked hard to keep up with changes in consumer behavior and how those changes affect the FICO scoring calculations. Until about a decade ago, the FICO consumer credit score was the only one used by the three major credit reporting agencies and the only one used by lenders and financial institutions, according to the FICO website.
During the past few years, VantageScore has challenged competing with FICO for a position atop the consumer credit scoring food chain. VantageScore can generate individual credit scores by partnering with the three major credit bureaus and using information and scoring models similar to those used by FICO.
Consumers should be aware that there are some differences between FICO and VantageScore that they should be mindful of. First and foremost, it is critical to understand that both the FICO and VantageScore methods use the same consumer information, which includes payment history, credit usage, recent inquiries, length of credit history, and type of credit history.
FICO bases its scoring on the credit reports of millions of consumers at a time, obtained directly from the three credit bureaus to produce the most accurate scoring possible.
To create its scoring formula, VantageScore, on the other hand, uses consumer credit files that are broken down into smaller groups. Both end up with a score range of 300 to 850, but that’s about where the similarities end for the most part.
VantageScore is more advantageous to consumers who have a short credit history because its scoring model only requires one month of activity and one account reported to the credit bureaus to generate a score for each account.
On the other hand, FICO requires at least six months of credit history and one reported account. It means that, at least initially, a VantageScore for a given individual may be significantly higher than a FICO score for the same person.
Similarly, when it comes to late payments, VantageScore and FICO have differing viewpoints on the subject. Payment history accounts for 35% of the FICO score calculation, despite all late prices being treated the same way.
Late mortgage payments are penalized more severely by VantageScore calculations than late payments on other credit accounts, resulting in a lower VantageScore than a lower FICO score for the individual.
When viewing one’s credit score on Credit Karma, the results may differ from when viewing it directly through one or more credit reporting agencies. Credit Karma’s accuracy is less accurate than most people realize because of minor differences in how VantageScore and FICO credit scores are calculated.
VantageScore 3.0® credit score ranges
Here’s what the ranges look like for VantageScore 3.0.
| Credit score ranges | Rating |
|---|---|
| 300–600 | Poor |
| 601–660 | Fair |
| 661–780 | Good |
| 781–850 | Excellent |
FICO credit score ranges
FICO has two main types of credit scores.
- Base FICO consumer scores — These scores predict the likelihood a consumer won’t make a payment as agreed on any type of account in the future, whether it’s a mortgage, credit card or student loan.
- Industry-specific FICO scores — These credit scores are tailored for particular types of lenders, such as auto lenders or credit card issuers.
FICO® 8 and 9 consumer score ranges
| Credit score ranges | Rating |
|---|---|
| 300–579 | Poor |
| 580–669 | Fair |
| 670–739 | Good |
| 740–799 | Very good |
| 800–855 | Exceptional |
FICO industry-specific score ranges
| Credit score ranges | Rating |
|---|---|
| 250–579 | Poor |
| 580–669 | Fair |
| 670–739 | Good |
| 740–799 | Very good |
| 800–855 | Exceptional |
How does Credit Karma make money?
The cost of maintaining a website that provides soft scores for free is not insignificant, but the site itself is pretty profitable. However, even though the site is best known for its free credit reports, most of its revenue is generated through referrals.
Once Credit Karma has run your credit report, it makes an effort to match you with credit cards, mortgages, and loans that are deemed to be appropriate for someone with your credit history.
You are under no obligation to accept any of the credit card offers or other similar offers that may be made to you. Nonetheless, Credit Karma receives a commission if you do.
How can Credit Karma help me and What Does It Offer?
If you’re trying to make ends meet by purchasing a new car or a new home, Credit Karma can assist you in various ways. The following are the most common ways in which people seek assistance from the site:
It assists people in determining whether they can afford a home or qualify for the loan they desire. People concerned about finding a lender with whom they can collaborate usually appreciate the fact that loans are pre-screened to determine whether or not you meet the typical qualifications.
If you are prone to identity theft, Credit Karma can assist you in determining whether or not someone has opened an account in your name without your knowledge.
People who discover inaccurate or false information on their credit reports can file a dispute through the site’s dispute function, resulting in the information being removed. It, in turn, has the potential to raise your credit score.
Credit Karma also allows users to learn more about how they can improve their credit scores by visiting their website.
Why is my credit score different on Credit Karma than TransUnion?
It is probably because you have a variety of credit scores, some of your credit scores may be higher than the TransUnion and Equifax scores you see on Credit Karma. In contrast, others may be lower than those scores.
Do All My Credit Problems Show Up On Credit Karma?
Credit Karma’s reports will contain information about the majority, but not all, of your collections and missed payments.
It is entirely up to the discretion of collections agencies and creditors, who have the authority to choose which credit bureaus they report to and which they do not. Most organizations will report it to TransUnion or FICO, or possibly all three. Some may only say them to a single person.
Consequently, there is always the possibility that there are other “dings” on your credit report that Credit Karma isn’t aware of. However, despite the discrepancies, it is reasonably safe to conclude that Credit Karma can provide you with a more accurate picture of your credit score.
What are Credit Karma limitations?
The first question to ask yourself is whether you require Credit Karma’s free services or not. And how urgently you need detailed information about your credit standing may determine how much time you have available. Remember:
1- Your legal right to a copy of your credit score and credit report from each of the three credit bureaus once every 12 months is protected by the Fair Credit Reporting Act (FCRA).
2- Customers of many banks and lenders can obtain access to their credit scores on demand. For example, suppose you have an American Express card. In that case, you can access your FICO score and FICO history by selecting Account Services from the menu bar.
Most of the time that is sufficient for the majority of us. Having access to your credit report and the related services Credit Karma provides may be beneficial if you are about to apply for a mortgage, are working to improve your credit rating, or simply want to take advantage of the other services that Credit Karma provides, among other things.
Why is my Credit Karma score higher than my FICO score?
Credit Karma displays a FICO credit score, which is different from the TransUnion or Equifax scores displayed on the site.
The equation that FICO uses to calculate your score will have slightly different weights than the equation that Credit Karma uses to calculate your score, even though the score will be similar to both. As a result, you see the different scores from both.
Most people discover that their FICO scores are slightly lower than their Credit Karma scores. Occasionally, Credit Karma may fail to recognize a collection that you have.
How often does Credit Karma update?
All of this is dependent on the situation, but Credit Karma appears to be working on weekly updates lately. It is possible to actively work toward seeing your credit score improve week by week. While you can make the updates every week, the reality is that it may take some time before your credit-building efforts bear fruit.
For example, it can take anywhere from one to two months just to see a credit report dispute through to completion. It means that after the negative mark in question has been challenged; you may have to wait two months before you see an improvement in your credit score.
As an analogy, it may take several weeks for your credit score to be updated to reflect a recent negative mark. It is dependent on how long it may take for creditors to report the matter to the bureau of consumer protection.
Consequently, even though Credit Karma updates every week, it does not necessarily follow that you will immediately see the changes on your credit report.
Your TransUnion and Equifax scores can be refreshed as frequently as once per day for TransUnion and once per week for Equifax, with a limited number of members currently receiving daily Equifax score checks.
How many points off is Credit Karma?
The only answer that could be given is a few points if any at all. Your credit score can differ from one calculation to the next depending on whether the VantageScore or FICO model is used if another scoring model is used, and even on which version of a scoring model is utilized.
The most important thing to remember is that this number should appear in the same slice of the pie chart that ranks a consumer as “bad,” “fair,” “good,” “very good,” or “exceptional” in terms of service and satisfaction.
Why does it take so long for disputes to go through on Credit Karma?
Credit bureaus are legally obligated to update their credit files within 45 days of receiving a dispute letter from the consumer. However, it’s important to remember that it may take longer than 45 days for the bureaus to process your application and documents.
Furthermore, it’s important to remember that Credit Karma is not the same as a credit reporting agency. As a result, they do not receive real-time updates from their end. They must perform automated updates, in which the information from the credit bureaus is sent to them automatically.
Why are my Credit Karma and my FICO scores different?
VantageScore and FICO are the two most powerful competitors in the credit rating industry. Credit Karma uses VantageScore. Each of their models differs slightly in the amount of weight they give to different aspects of your spending and borrowing history.
Am I guaranteed approval for offers Credit Karma gives me?
There are a lot of misconceptions about the offers and credit card recommendations that Credit Karma makes to people. Here are some of them. One of the most common problems that people encounter is when they attempt to apply for a new credit card that has been recommended by the website only to be rejected.
Why was I rejected for a Credit Karma offer?
The fact that Credit Karma paired you with an offer that didn’t work out for you could be due to several different factors. A lower credit score is the most common problem that people think of, but the truth is that it could be anything from having the wrong income to not spending enough.
While being rejected by a credit card company or loan company can be upsetting, there is some good news to take away from experience. When you are denied a credit card application, the company is required to send you a formal letter explaining why you were denied the card.
Having a letter detailing why you were rejected is a massive benefit for people curious about why they were turned down for a job. It provides you with an opportunity to address the financial issues that contributed to your rejection.
Why was I matched for a Credit Karma offer if I wasn’t qualified for it?
Credit Karma’s algorithms aren’t perfect. While they can give you a good idea of what you might be eligible for, there are some limitations to what they can tell you.
What the site’s algorithms do is straightforward: they look at what other people in your financial range have been approved for and then present you with the same options as they did to them.
The program operates under the assumption that you will follow the same pattern of approval as others, so the pairing is more of a “guesstimate” than a thoroughly inspected one. After all, there are always exceptions to every rule.
What are the other free options in addition to Credit Karma?
Millions of people use credit Karma to keep track of their credit scores. The company is highly transparent, and it offers its services through the VantageScore rating system. As a result, it provides a trustworthy snapshot of your current credit standing.
We can also use Credit Karma to identify inaccuracies in your credit report, which is very useful. In the words of Hardeman, “Be proactive and monitor your credit report regularly so you can catch inaccuracies or fraudulent information. Make sure that these inaccuracies are corrected before applying for credit.”
Keep in mind that there are other free alternatives to Credit Karma and accessible options to Credit Karma. Your credit card issuer or bank may provide an update online. Furthermore, you have a legal right to obtain a free copy of your credit report once a year16, which can be obtained from AnnualCreditReport.com.
Credit Karma can also assist you in your loan product research. If you’re looking for a loan, a service that provides you with your most recent credit score, as well as current credit offers in one convenient location, can be extremely useful.
Don’t forget that these offers are what make Credit Karma’s business go round. Advertisers on the site are eager to lend you money, which may not be the best thing for your credit score.
Conclusion
Credit Karma may be the solution you’ve been looking for if you’ve been looking for a free way to improve your credit score. Credit Karma can be the credit-building ally you’ve been looking for to get yourself back on track with your financial life.
Credit Karma is a valuable tool for understanding your position on the credit score spectrum. However, it is essential to know that it has its limitations.
A copy of your credit report from the credit reporting agency FICO is the best way to ensure that your FICO score is ready for a new home purchase before making an offer.
