Is Credit Karma Accurate?

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Is Credit Karma Accurate?

Credit Karma guarantees that you will get your accurate credit score and credit report for free. 12 But how precise and trustworthy is this data? Is Credit Karma providing you with the same information that a lender would if you applied for a mortgage or a vehicle loan? Is it providing you with something you can’t obtain elsewhere?

To begin, you should understand what Credit Karma is and what it accomplishes, as well as how its VantageScore varies from the more famous FICO score.

Key Takeaways

  • In return for information about your spending patterns, Credit Karma provides you with a free credit score and credit report. It then charges businesses to deliver you personalized adverts.
  • TransUnion and Equifax, two of the three main credit agencies, provide the scores and credit report information on Credit Karma.
  • Based on such data, Credit Karma generates its own reliable VantageScore.
  • Your Credit Karma score should be the same as or similar to your FICO score, which is likely to be checked by any potential lender.
  • The range of your credit score (such as “excellent” or “very good”) is more essential than the exact figure, which varies by source and fluctuates often.

What Is Credit Karma?

Credit Karma is well recognized for providing free credit scores and reports. It does, however, promote itself more generally as a website that provides its customers with “the opportunity to create a better financial future.” 3

To use Credit Karma, you must provide basic personal information to the firm, which is generally only your name and the last four digits of your Social Security number. Credit Karma then accesses your credit records with your consent, produces a VantageScore, and makes it accessible to you. 2

The credit score range Karma’s credit score ranges from 300 to 850. Their credit ratings are classified into three types:

  • Poor: 300 to low 600s
  • Low 600s to mid 700s are considered fair to excellent.
  • Excellent/exceptional: above the mid 700s4

Is Credit Karma Accurate?

Though the FICO score is undoubtedly the most well-known credit score (and the one that almost every personal finance expert recommends you monitor), many people are unaware that FICO does not really gather information. FICO is a formula that generates a credit score by analyzing your data from the three main credit reporting agencies.

Credit Karma’s VantageScore uses a similar method, except that its rating algorithm was developed by credit bureaus. Although VantageScore is less well-known, it claims to have scored 30 million more individuals than any other model. 5 One benefit is that it evaluates persons with limited credit history, sometimes known as having a “thin” credit file. If you’re young or have just moved to the United States, this might be a significant consideration.

Credit Karma is not a credit bureau, which means it does not collect information from creditors. Credit Karma’s credit scores and reports represent your credit information as reported by TransUnion and Equifax, two of the main consumer credit agencies. Because these scores are not approximations of your credit score, they are accurate and dependable. 6

TransUnion and Equifax, two of the three main consumer credit agencies, provide the credit scores and reports seen on Credit Karma. Credit Karma’s credit scores and reports should correctly represent your credit information as provided by those credit agencies.

Credit Karma Vantage Scores

Investopedia contacted Credit Karma to inquire why customers should trust Credit Karma to deliver an accurate assessment of their creditworthiness.

“The scores and credit report information on Credit Karma originate from TransUnion and Equifax, two of the three main credit agencies,” said Bethy Hardeman, the former chief consumer advocate at Credit Karma.

“We give VantageScore credit ratings from both credit bureaus separately.” VantageScore was chosen by Credit Karma because it is a partnership of the three major credit bureaus and a transparent scoring mechanism that may assist customers better comprehend changes to their credit score.”

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VantageScore or FICO: Does It Matter?

FICO is not VantageScore. FICO stands for Fair Isaac Corporation, the largest competitor in the field of developing scoring algorithms used to assess customer creditworthiness. 7 To make things more complicated, both models are updated on a regular basis, and lenders utilize various versions with somewhat varied findings.

On either model, your score should be nearly the same. Unpaid medical debt may be given somewhat higher weight in one model. A loan application may take longer to record. However, if your credit score is “excellent” or “very good” in one system, it should be the same in the other.

VantageScore and FICO are both credit rating software tools that use individuals’ purchasing and payment history to produce credit scores. FICO is the older and more well-known model, having debuted in 1989. 8 VantageScore was created in 2006 by the three major consumer credit bureaus, Experian, Equifax, and TransUnion. 9

Because they are two separate models, your VantageScore will always vary from your FICO score. In fact, depending on whether the source employs a particular form of FICO or the most often used basic model and which of its numerous versions is utilized, you may get a different FICO score at any given moment.

The crucial thing is that your score on any or all of those models should be in the same ballpark. You should have a “fair” FICO score and a “excellent” VantageScore.

Key Differences Between FICO and Vantage Score

The differences between the FICO and Vantage scores are minor:

  • VantageScore is intended to monitor new or infrequent credit users. This may be advantageous for young individuals or anybody who has fallen off the consumer radar for whatever reason.
  • When you apply for a new loan, the lender will look at your credit history. Numerous applications must be regarded as one inquiry under consumer protection rules to avoid being penalized multiple times for comparison shopping. Because the two competitors approach these questions differently, VantageScore may penalize you more than FICO.
  • Both generate a credit score at the time the request is made. The FICO system is based on current information submitted to credit bureaus. The VantageScore algorithm takes into account your purchasing habits over the last two years. 10

Similarities Between FICO and Vantage Score

FICO and VantageScore both have the same simple goal: to forecast the possibility of a customer defaulting on a loan during the following 24 months. 11

That is why you should not be concerned about the discrepancies. Your credit ratings should all be in the same ballpark, but they will never be identical.

Different lenders utilize various scores. It may not matter which score you depend on—FICO or VantageScore—because you can’t foresee which score they will select. There are several additional scoring models, and there is no practical way to keep track of or access them all.

You do not have a single credit score. You have a number of credit scores, each generated by a lender using one of many models or variants of models. The crucial point is that they all fall into the same category, such as “excellent” or “very good.”

Other Services Credit Karma Offers

Credit Karma will get information on your credit history from TransUnion and Equifax, two of the three main consumer credit reporting companies. (Experian is the third.) Based on VantageScore, it will generate its own independent rating. You will then be given your current VantageScore rating as well as the more extensive credit reports that go with it. 12

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In addition to this free service, Credit Karma offers additional relevant services such as security monitoring and warnings when someone does a credit check on you. 13 Credit Karma is not alone in offering such notifications and services: several of the finest credit monitoring firms do as well.

When you submit your personal information with Credit Karma, you may search for customised offers for a credit card, a car loan, or a house loan, and your search will not appear on Credit Karma or anywhere else in your credit report. “Inquiries” is a common feature of credit reports that details requests for your report from lenders to whom you’ve applied for a loan. You may restrict the amount of queries you make using Credit Karma.

Credit Karma also provides tailored money management advice. (Example: “Your automobile loan interest rate is 16%. You might be overpaying! “)

100 Million +

The number of users worldwide that Credit Karma claims.14

How Credit Karma Makes Money

Credit Karma’s economic approach isn’t totally selfless. It is a for-profit company that generates revenue by providing you with a free credit score in return for knowing more about your spending patterns and charging firms to give you customized adverts.

Credit Karma displays adverts to its users in the hopes that they would react by clicking on them. Many of these advertisers are lenders, and Credit Karma may get a commission if you apply through one of their links.

Advertisers value your personal information and will pay extra to target it. With over 100 million active users,14

Credit Karma Drawbacks and Limitations

The first question is if you need Credit Karma’s complimentary services. And it may be determined by how urgently you want precise information about your credit condition. Remember:

  • Every 12 months, you have the legal right to a copy of your credit score and report from each of the three credit bureaus. 15
  • Many banks and lenders provide account users with access to their credit ratings on demand. For example, if you have an American Express card, you may examine your FICO score and history by clicking on Account Services.

Most of the time, that’s enough for most of us. If you’re preparing to apply for a mortgage, striving to repair your credit, or interested in the other services Credit Karma provides, you may desire this access to your credit report and the other services the firm provides.

Credit Karma will not harm your credit score. Your query is a self-initiated inquiry, which is a “soft” credit investigation rather than a “hard” credit inquiry. 16

Your Credit Karma Score May Be Insufficient

On Credit Karma, your credit ratings might alter on a daily basis. It is mostly determined by when your lenders report to credit agencies. Credit Karma now allows you to see your daily TransUnion credit score. 17

VantageScore’s method is accurate, however it is not industry standard. Credit Karma is enough for the ordinary consumer, but firms who accept or refuse your application are more likely to consider your FICO score.

Credit Karma May Encourage Borrowing

Credit The business strategy of Karma is to collect advertising money and commissions from loans obtained via the site. Despite its status as a trusted advisor, the site is incentivized to sign you up for additional loans.

Use Credit Karma to track your credit score rather than to obtain advise on whether you should take on more debt.

Is Credit Karma Really Free?

Yes. You will not be charged any fees by Credit Karma. 3 If you apply for a loan via the website, the firm will charge you a fee.

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Does Credit Karma Use FICO?

No. However, the credit score provided by Credit Karma will be identical to your FICO score. TransUnion and Equifax, two of the three main credit agencies, provide the scores and credit report information on Credit Karma. 6 Your TransUnion and Equifax scores may be updated as often as daily and weekly, respectively, with a limited number of members receiving daily Equifax score checks at this time. 18

Is It Safe to Use Credit Karma?

Yes. Credit Karma protects its data transfer using 128-bit encryption, which is regarded virtually hard to hack. It also promises not to sell your personal information to other parties. 19

Why Are My Credit Karma and My FICO Scores Different?

In the credit rating industry, the two main competitors are VantageScore and FICO. VantageScore is used by Credit Karma. Their models vary significantly in the importance they put on different aspects of your spending and borrowing history. 10

Credit Karma rates your creditworthiness using two of the three main credit agencies and the commonly used (although not as extensively used as FICO) VantageScore methodology. 6 Your credit score should be in the same range as it is with the main credit agencies and its numerous rivals.

Some customers have stated that their Credit Karma score is much higher than their FICO scores on the customer review site ConsumerAffairs. 20 It is uncertain if these postings are trustworthy, but they are worth mentioning.

If your Credit Karma score is incorrect, the issue is most likely elsewhere. That instance, one of the agencies made a mistake or left out information. Alternatively, the information might have been disclosed to one bureau but not to others.

Who Owns Credit Karma?

Credit Kenneth Lin, Ryan Graciano, and Nichole Mustard launched the worldwide corporation Karma in 2007. 21 Lin is now the CEO, Graciano is the Chief Technology Officer, and Mustard is the Chief Revenue Officer. 3

Intuit, the firm behind TurboTax, completed the purchase of Credit Karma in December 2020 for roughly $3.4 billion in cash and 13.3 million shares of Intuit stock and equity awards for a total of $4.7 billion. 22

The Bottom Line

Credit Karma is used by millions of individuals to monitor their credit ratings. The organization is quite open and offers its services through VantageScore. As a result, it provides a trustworthy overview of your present credit situation. Credit Karma may also help you find errors in your credit report. “Stay proactive and examine your credit periodically so you may spot mistakes or fake information,” Hardeman recommends. Before asking for credit, make sure you challenge these falsehoods.”

Keep in mind that there are other free alternatives to or in addition to Credit Karma. Your credit card company or bank may provide an update online. You also have a legal right to a complete copy of your credit report once a year, which you may get at AnnualCreditReport.com. Credit Karma can also assist you in your loan product investigation. If you’re looking for a loan, a service that gives you with your most recent credit score as well as current credit offers in one spot might be quite useful. Remember that these deals are Credit Karma’s bread and butter. Its marketers are ready to give you money, which may be detrimental to your credit score.

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