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Updated on Thursday, October 1, 2015
Most lenders, credit card companies and banks use credit scores to approve or deny applicants and set interest rates. However, applying for a new credit card or loan isn’t the only time your score appears in everyday life. Utility companies, landlords, cable providers and even some employers pull your score to see how responsible you are with credit. Do you know where you stand?
You should because it’s easier (and cheaper) than ever to stay informed. Plus it’s important to monitor your report for red flags because they can seriously affect your future. Fortunately, several sites like Credit Karma now offer free credit reports with no strings attached.
An Overview of the Free Credit Karma Service
Credit Karma offers two up-to-date credit scores from TransUnion and Equifax, which is unique. Most free services only give users a score from one credit-reporting agency.When you create an account with Credit Karma you get access to your credit history at any time. Scores are updated on a weekly basis and you can opt-in to notifications that will alert you to changes on your credit report.
The Credit Karma dashboard provides a great deal of information in a user-friendly way. There’s the credit factors section, which shows what’s impacting your score positively and negatively. It has a reports area that populates each of your credit accounts, credit inquiries, public records and accounts in collections. This is the useful report you can check regularly to catch inaccuracies and spot identify theft.
In addition to the credit reporting tools, Credit Karma has a simulator where you can play around with variables on your report (i.e. add a credit card inquiry) to view the affect it has on your score. There’s also a track spending application for transaction monitoring. You do have to take an extra step and input username and passwords for each of your online financial accounts in order to use it.
Finally, there’s a section for recommendations where Credit Karma highlights products you qualify for based on your credit score and spending patterns. Some credit solutions are suggested to save you money and others are offered to help you make money through cash back rewards.
How Credit Karma Determines Your Scores
Credit Karma pulls your VantageScore 3.0 from TransUnion and Equifax. The score range is from 300 to 850. Scores are determined using the following factors (from most impactful to least impactful):
- Credit Card Utilization
- Payment History
- Derogatory Marks
- Age of Credit History
- Total Accounts
- Credit Inquiries
The VantageScore 3.0 is a relatively new scoring metric having launched in 2006. The FICO scoring system is still widely used by lenders to determine creditworthiness.
Ultimately, the score you pull from Credit Karma will likely differ from scores pulled by credit card companies and other lenders for a few reasons. The FICO score weights credit factors differently than the VantageScore 3.0. For instance, my FICO score is nearly 55 points lower than my scores on Credit Karma. A score also varies depending on which credit bureau it’s pulled from – TransUnion, Experian or Equifax.
Is it worthwhile to get your score from Credit Karma even if it’s not a FICO score? To be fair most free online credit score sites use the VantageScore 3.0 rather than the FICO score. The VantageScore 3.0 is still a valuable benchmark for you to monitor score change over time and to audit each of your accounts.
Some financial institutions now offer free FICO scores with products. I get my FICO score through American Express, but currently it doesn’t provide a detailed credit report. So free sites like Credit Karma are a nice complement to the FICO score (and the annual free credit report) because it provides a full report that’s updated regularly at no cost.
Credit Karma & Data Security
Of course to access your credit report you need to input sensitive information like your Social Security number. Because data breaches are becoming more and more prevalent, data safety is a top concern for all of us. Credit Karma takes several measures to ensure your information is secure.
It uses encryption to protect data and a team of personnel secures its servers. Credit Karma uses firewalls plus other online protections. It also performs external security audits to catch weaknesses in the system. Your credit report is read-only so if someone does get into your profile they’re unable to make any changes to your accounts.
Be Critical of Product Recommendations
Credit Karma uses your personal data to provide product recommendations like credit cards and personal loans. For the most part, the site offers products that may help you repay debt faster, save money on interest or improve your credit score.
But don’t assume every offer is right for you. Do your own research to confirm whether or not a recommendation will, in fact, benefit your financial situation.
What’s the Catch?
Admit it, we’re all a little skeptical about the word free. But in this instance, free really means free. You’re not required to put in credit card information to signup or to use any of the tools on Credit Karma.
Credit Karma can operate as a free resource because the products promoted on the site are paid advertisements. Each of the offers and the order in which they appear on the site may be impacted by compensation. However, Credit Karma couples product offerings with consumer reviews so you can do a little more digging to find out if an offer is right for you. Still you’re not obligated to choose a product. You can simply ignore the advertisements altogether and use Credit Karma for free.