Is credit karma accurate? Is it giving you the same kind of numbers your potential lenders will see whenever you try to apply for a loan? How far off, if at all, is it from the numbers given by any other credit reporting agency?
While I may talk a lot about savings and being prudent with your money, a huge part of decluttering your finances is knowing exactly where you stand with the major credit bureaus.
Being credit-worthy is almost as important as being frugal. It all ties in together.
There are just some investment projects that you simply can’t finance with your savings or credit cards. You will need a loan.
To get one at good rates, you need a good credit score. That’s where credit rating bureaus like Credit Karma come into play.
Who Is Credit Karma?
Owned by Intuit, Credit Karma is a website that offers credit scoring services. Intuit credit karma sets itself apart by offering you free credit reports as well as helping you build a better financial situation for your future. It does this by:
- Allowing you to create a few prompts, such as alerts, whenever any changes are made to your credit rating
- Track your credit rating progress
- Prevent identity theft
- See some factors that are negatively affecting your credit score
The information found on credit karma updates every 7 days, making it quite up-to-date.
How Does Credit Karma Work?
Like most credit scoring services, Credit Karma requires some of your personal information to fetch your credit score. The website requires you to provide it with personal information, such as the last four digits of your social security number and your first and last name.
After that, the service will ask for your permission to access your credit reports and then compile a VantageScore. It then makes this information available to you.
Credit Karma relies on data from TransUnion and Equifax to provide your credit reports.
Is Credit Karma Accurate?
“Regardless of what our national credit rating is, people will always want a roof over their heads, food on their tables, fuel for their cars, and clothes on their backs.” Robert Kiyosaki
In my experience, yes, credit karma is accurate. I tried it out, and my credit score on Credit Karma was the same as from any other credit scoring service. However, there are a few differences.
To understand credit karma and see that the credit karma score is just as accurate as most other paid services, let’s take a quick look at what is considered when coming up with your credit score.
All credit scoring services look at the same financial information, such as:
- Your account payment history
- Credit utilization percentage
- Number of accounts used or opened
- Negative credit issues
All this information is collated, and an algorithm derives your credit score from it. The credit score you get is a three-digit number that ranges from 300 to 850 in many cases. The closer your score is to 850, the more creditworthy you are to lenders.
For the most part, the FICO score is what is used by most lending agencies. Like credit karma, FICO doesn’t collect your credit information.
It’s simply a credit scoring model that uses an algorithm to look at your credit profile from the three major credit reporting bureaus (Experian, TransUnion, and Equifax).
Credit Karma, on the other hand, doesn’t use the FICO score but rather something known as the VantageScore. This is quite similar to the FICO score; in fact, it can be argued that it could be slightly better since it was created by different credit bureaus.
While VantageScore is relatively unknown to the public, it claims to serve 30 million more people than most other credit scoring models.
FICO and VantageScore credit scores use the same number models to give you your credit rating. The biggest difference I see is simply the fact that credit karma doesn’t include all three major credit rating bureaus, as is included when using FICO-run credit scoring models.
As mentioned, Credit Karma uses TransUnion and Equifax. As such, it can be argued that the exclusion of Experian from the mix could lead to slightly skewed numbers.
While that hasn’t been the case in my experience, I’ve read in some forums that people have had their numbers off by 5 points or even more.
FICO, or VantageScore, Why Does It Matter?
FICO, the most commonly known credit scoring model, stands for Fair Isaac Corporation. FICO and VantageScore do the same thing: rate your creditworthiness.
The difference between the two is how much weight is placed on the wide range of factors that determine how creditworthy an individual is when lenders take a look.
For example, one model could place more weight on your unpaid medical bills, while another could consider your student loans more of a concern.
Another issue is that each model updates their ratings periodically and not at the same time. So, the reading you get today might not be the same reading a lender gets next week when the updates have rolled out.
All in all, your credit score should be roughly the same in both models, with slight variations depending on when the lender checks.
In short, if your credit rating is “very good” on FICO, then it should also be “very good” on VantageScore, despite the slight differences in readings.
That being said, here are the key differences between VantageScore and FICO:
- VantageScore tends to keep track of new credit users. This means that young adults or infrequent users will get a fairer shake when dealing with VantageScore as opposed to FICO.
- While both models compile your credit score when requested by lenders, the FICO model tends to rely more on current information, while VantageScore works with information on your typical spending behavior for two years.
- Whenever you apply for a new loan from any financial institution, they will check your credit rating. For the most part, you are probably going to apply for personal loans from multiple lenders at the same time (just to see who gives you the best possible rate and all that).
Consumer protection law states that these multiple applications should be treated as one credit rating query since you were technically “comparison shopping,” which means that your credit score should be checked once as opposed to multiple times. However, FICO credit score and VantageScore handle these inquiries differently. As such, your credit rating may take a bit more of a hit when dealing with VantageScore.
Frequently Asked Questions
Is Credit Karma Safe to Use?
Yes, credit karma is safe to use. Whenever you have to give out sensitive personal information, such as your social security number, it’s only logical that you become a little skittish, at best. This information can be used to perpetuate identity theft.
Credit karma boasts of using 128-bit encryption. This is considered nearly impossible to hack. This means that your personal data is well protected when using Credit Karma. The company also says that it doesn’t share your personal data with any third parties.
Is Credit Karma Free?
Yes, Credit Karma does offer free credit scores. The service will not charge you a fee to check your credit score.
However, credit karma does offer other services as well, such as credit karma insurance services, credit karma savings (also free), credit karma tax, credit karma mortgages, and credit karma money, which could attract some fees depending on the service you choose.
Is My Credit Karma Score Sufficient?
There are several answers to this question. Credit karma relies on the VantageScore credit rating model, which is an industry standard in and of itself.
However, many financial institutions, including the one that’s likely going to approve or deny your loan request, rely on the FICO credit rating model.
While FICO and VantageScore are essentially similar, both of these systems emphasize different factors that determine your credit rating.
As such, the score you get from one may differ slightly from the other. In my experience, it’s better to check both systems just to be sure.
Is credit karma accurate? Yes, credit karma is accurate, but it does focus on slightly different factors than FICO. Another thing you should know is that the credit-karma business model is commission-based.
This means that the service, while being an accurate avenue for credit score monitoring, is a bit more focused on getting you to sign up for various other financial products, such as loans, from which they get a commission. If this is your end goal, well and good.
However, if all you want to do is get an accurate reading of your current credit score, then simply use credit karma monitoring as opposed to taking financial advice from the site as to whether or not you should take on a new loan. That being said, credit karma monitoring is free and accurate.