Now that I’ve been able to gather a few weeks of anecdotal data, I’ve found there are many good things about Credit Karma as well as a couple of downsides. But first let’s take a look at how the site works and how to use it:
Signing up for and navigating Credit Karma
Before you can view your credit scores and reports, Credit Karma requires you to sign up. As I mentioned the site is completely free and doesn’t require you to enter a credit card number, making for a relatively painless process. However you will need to share some sensitive information including your social security number so double check that your browser shows the site as “https://” — the ‘s’ meaning it’s secure — and it’s probably best to not sign up while using public WiFi. After entering the basic info you’ll have to confirm your identity by answering some oddly entertaining questions they devise regarding where you’ve lived, what types of credit you’ve held, and sometimes even your old roommate’s birthday (seriously). Should you pass their challenge you may
cross the Bridge of Death in safety enter the site and view your credit info.
Once logged in you’ll be brought to your dashboard, starting with an overview. The first thing you’re likely to notice is two gauges that indicate two different credit scores: one from TransUnion and the other from Equifax. In addition to a number Credit Karma will also give you a basic adjective that best describes your credit standing. They seem to consider anything over 700 “Good” while over 750 is “Excellent.” On the other end, “Very Poor” is anything under 580.
Moving down a click, the next option is “Credit Factors” which gives you a look at all five categories that go into determining a credit score as well as a hint on where you stand in each. This is perhaps the most helpful part of the site as it allows you to easily see where improvements can be made. For example, if you’re currently using 20% of your revolving credit, it will recommend you try to bring that down to 9% — moving from a “Good” utilization rate to an “Excellent” one in their book. Once again this info displays for both participating credit bureaus.
Another thing I liked about Credit Karma was how readable it made your credit reports. Often times these documents can be a little overwhelming but here the info is displayed so you can get all the info you want without trudging through a bunch of random numbers, names, and abbreviations. Here you’ll be able to see a list of credit accounts that report to each bureau and drill down for more information including account status, credit limit, and payment history. Additionally, while I haven’t had to use it, Credit Karma also offers a Direct Dispute form you can utilize to correct any issue you may find. Again, I can’t speak to how effective this feature might be, but it sounds great in theory.
At this point you may be wondering how Credit Karma can offer such a service for free. Here’s how: credit card sign-up referrals. Yes, you will see ads for various credit cards while surfing the site. However, unlike normal advertisements you may encounter around the web, Credit Karma provides you with information about each card explaining why you may want to sign up for it. Additionally clicking the “Recommendations” tab will give you a list of cards along with your odds of approval. Not only is this a good place to start when researching new potential credit cards you might want to add to your wallet but could also be a nice way to thank the site for the service they provide you (just be sure to use their “Apply Now” buttons when you’re ready).
Credit score simulator
This part is actually really cool. Basically, before you decide to open that new card, close an old one, or get a loan, Credit Karma can tell you how your credit is likely to be affected by that decision. In theory this could be extremely helpful in stopping you from making a huge mistake. For example, the simulator informed me that if my wife were to close her 11-year-old credit card, her score could plummet more than 150 points since “age of credit” is a factor in calculating your score. Assuming you didn’t know that already, wouldn’t you be damn happy to have prevented that massive error?
How accurate is Credit Karma?
That’s the $64,000 question, isn’t it? Well, at this point, it’s a little hard to say for sure how accurate the scores Credit Karma gives you are. This is due to a number of factors, not the least of which involves how creditors request your score and make their decisions. Let’s take this piece by piece:
Credit scores are far more complex than most people realize. In fact, while most people associate credit scores with FICO, there are several other methods used by creditors as well. In the case of Credit Karma, VantageScore 3.0 is employed. What does this mean? Well it means that your scores may not match those provided by other services.
There are some similarities. Like FICO, VantageScore still grades on a scale ranging from 300 to 850. Additionally the factors that go into a score and the basic weighting behind each section are also the same. So really what it comes down to is a tweak in the algorithm that laymen like me aren’t exactly privy to that can lead to some discrepancies between other scores you may obtain.
As I mentioned, Credit Karma offers scores for TransUnion and Equifax. Conveniently I have recently been provided with a FICO score for each of those bureaus as well and, from what I can tell, VantageScore may be a little… generous. When I received my Discover It card just a few weeks ago, the paperwork inside had me at a 755 Equifax score. By comparison, Credit Karma shows me at 783. Similarly, as of September 4th, Discover pegged my TransUnion score at 757 while Credit Karma shows me gaining 26 points (thanks to the added available credit) in the past week to reach a whopping 792.
Clearly these are not exactly small differences but, to be fair, they do still land me in the same realm of creditworthiness in both cases. But it’s actually even more complicated than that as you’ll see in the next section.
Even some FICO scores can vary from others
Get this — not even FICO offers one standardized score. The number shown to a car loan lender might be different than what a credit card company sees as, once again, the algorithms behind how these scores are calculated can be altered slightly depending on the circumstance. What does this mean for Credit Karma? Despite what some commercials may tell you, you’ll almost never know exactly which one of your dozens of scores a creditor will see. While they should be fairly similar there’s also a bit of a range you should be prepared for. With that said…
You can still learn from Credit Karma’s tools
Even though your score may not be quite as high as Credit Karma would have you believe (or maybe it is? Again, this is all anecdotal) there’s still a lot of value in this free service. First knowing the range of where your credit sits is hugely important. After all, it’s what put me back in the saddle and ready to get serious about raising my credit. Additionally the site allows you to view your scores often and see how your actions can affect your scores — in my experience I was able to see a slight hit when Discover pulled by credit report and a big bump after I was approved for a new line. While it’s probably not a great idea to babysit your credit it’s very comforting knowing you can find this info easily.
So Credit Karma might not be able to tell you exactly what your credit score is but the truth is you have so many scores that it hardly matters. What makes this free service great isn’t necessarily the credit scores it offers you but the tools it gives you to protect, monitor, and improve your overall credit. In my estimation the Credit Factor section would be a real eye opener for many users while the Credit Simulator could be a real lifesaver. Needless to say I owe Credit Karma a debt of gratitude for helping me get back in the credit game and I reckon they can do the same for others.