You have probably heard of Credit Karma before. They are a credit monitoring service that gives people credit scores for free. But how accurate is Credit Karma? This question is worth asking. After all, your credit score is one of the most important factors in your financial life.
In fact, lenders assess your credit score anytime you’re applying for a home loan or personal loan, renting an apartment, applying for a credit card. You get the idea! Lenders use that 3-digit number to determine the potential risks your might face in case you’re unable to meet your credit obligations.
To illustrate this better, think of your credit score as a representation of your credibility as a borrower. The higher your score is, the better your chance of getting approved and lenders are more inclined to offer you competitive interest rates. On the other hand, if your score is low, do not expect to get good news. That’s why it’s important to learn how to raise your credit score.
So, it’s important to know if the credit score you’re getting from Credit Karma is accurate and not just some number that they throw out there. If you are wondering, do not fret just yet. Fortunately, there are ways to know if Credit Karma is indeed accurate.
To understand how accurate Credit Karma is, you need to know how they make money?
Before delving at how accurate Credit Karma is, we need to understand how the company makes money. While Credit Karma gives free credit score, it is a for profit company. This means that its purpose is to make money. So the catch is, they earn a commission anytime your purchase or sign up for loan products or credit cards through their site.
That’s why on occasions you may receive emails from them urging you to check your score. When you check your score to their site, you often see, along with your score and credit reports, advertisements, credit card and loan offers. The hope is that you click on them and apply. If you do, they earn a commission.
Is Credit Karma accurate?
Now that you have an idea how Credit Karma makes money, it’s time to know whether the credit scores they give to people are an accurate representation of their creditworthiness.
Given that Credit Karma makes money when people comes back to their site and use the recommendations they offer, it is in their best interest to give you an accurate credit score. They are also transparent and a safe and legit company.
But the most important way to know for sure if the score from Credit Karma is legitimate and accurate is to know of the sources they get credit information. For one, Credit Karma is not a credit bureau. It’s a free credit monitoring services that makes credit bureau’s information available to you.
Your credit scores and credit reports from Credit Karma comes from TransUnion and Equifax, two of the three major credit bureaus. Their update your score weekly. You don’t need a credit card to sign up. It’s totally free.
Credit Karma uses the VantageScore 4.0 model
Credit Karma uses the VantageScore 4.0, which is an accurate model. The VantageScore use a credit score range of 300 to 850. This scoring system looks at your credit history, credit usages, balances, etc. These three factors carry a lot of weight in calculating your score.
This system also look at credit mix and experience, which are highly influential. However, payment history is not that influential. Lastly, credit age and credit inquiries carry less weight. You also receive a free credit report from Transunion and Equifax.
So, because Credit Karma is a trusted online platform and uses a legitimate and trusted Vantagescore system, the score you get is pretty accurate.
Credit Karma only relies on TransUnion and Equifax
Because Credit Karma only uses two of the three major credit bureaus, an individual’s credit score might not be entirely accurate. For example, let’s say you transfer a credit card balance to a new credit card.
If Experian is the only credit bureau that recorded the card was closed during the transfer, you credit score might drop, because the other two bureaus recorded you opened a new card.
Credit Karma does not provide FICO scores
Credit Karma does not provide FICO scores. The FICO score model uses a different algorithms than the Vantage score to arrive at a credit score. However, FICO Score is the most popular credit score lenders and creditors use.
In fact, according to a 2018 report, 90% of U.S. lenders use FICO Scores to make a decision. FICO scores are based on information collected on the consumers from the three major credit bureaus. Like the VantageScore, FICO score ranges from 300 to 850. 300 being the lowest credit score. 850 being the highest credit score you can get.
They consider your payment history, credit utilization, credit age, credit inquiries and credit mix. So, because the FICO scoring system weighs these various factors differently than the VantageScore model, a credit score from Credit Karma which relies on the VantageScore might not entirely be accurate.
Additionally, based on reviews from ConsumerAffairs.com, some people are reporting that their Credit Karma credit score is a little bit higher than their FICO scores. Whether or not that is true is debatable.
The bottom line…
So is Credit Karma accurate? The answer is yes, but there some limitations. Credit Karma uses Vantage 4.0 system, which is pretty accurate. One thing to note, however, is that Credit Karma does not provide Experian or FICO credit scores.
But it recommends financial products and makes money when you sign up or open an account with the advertising partners through the Credit Karma website. So before you apply for a loan or credit, it’s important to know which model the lender is using. That will greatly increase your chance of getting approved.
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