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Credit Karma Review: Free Credit Scores From Two Credit Bureaus

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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.

Credit Karma
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.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Taylor Gordon
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Taylor Gordon is a writer at MagnifyMoney. You can email Taylor here

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Know About the Different Credit Scoring Models

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Did you know that there are hundreds of credit scoring models being used today?

With different lenders creating different credit score models based on their own credit criteria, it is very possible that you could have a hundred credit scores. While it is impossible to obtain or keep track of all your credit scores, you should be aware of the models most used by lenders.

FICO score

The FICO score is the most commonly used credit score when applying for credit or a loan. FICO is an abbreviation for Fair Isaac Corporation, the first company ever to offer credit scores. You have different FICO scores at each of the three major credit bureaus — Equifax, TransUnion and Experian. Your FICO Score ranges from 300 to 850, and is based on several factors:

  • 35% Payment History – The most important factor in determining your FICO credit score is your payment history. Delinquent payments could stay on your report for seven years.
  • 30% Debts/Amounts Owed – Your total debt. The lower your debt, the more likely it is that your score will be higher.
  • 15% Age of Credit History – The longer your credit history, the more likely it is that your score will be higher.
  • 10% New Credit/Inquiries – The number of accounts you have opened recently, as well as the number of hard inquiries you have.
  • 10% Mix of Accounts, Type of Credit – The more varied your accounts, the more favorable your score.

However, the FICO model is not as simple as the above breakdown may seem. FICO often makes changes to its credit score model to make it a better reflection of how creditworthy individuals are. As a result, there are currently more than 50 FICO credit score models that are used for different types of debt. A different version of your FICO credit score is used for a mortgage, auto loan, credit card and more.

The latest version of the FICO score is FICO 9, which allows unpaid medical bills to carry a lower weight than other unpaid debts, disregards collections accounts that have been paid off in full and factors in rent payments that are reported.

FICO 9 was developed because unpaid medical debt may not be an indicator of financial health, as an individual may be waiting on insurance payments before paying the debt, or may not even know a bill has been sent to collections.

FICO score 8 is still the most commonly used by lenders. This model does not allow for the lower weighting of medical debt.

Consumers should also be aware of the newly launched UltraFICO Score. This score is the result of a partnership by FICO, Experian and data aggregator Finicity. The key difference between it and other FICO scoring models is that it allows bank account transactions to be factored into the final score. This is a score for which consumers will have to opt in by linking their deposit accounts to their credit profiles. This can help consumers with a sparse credit history to boost their scores based on their banking behavior, which includes a history of positive account balances, frequency of bank transactions, length of time the accounts have been open and evidence of consistent cash on hand.

As this is a very new feature, there will be a slow rollout of availability. You can sign up here to receive news and updates on the UltraFICO score.

VantageScore

VantageScore is the main FICO credit score competitor, and in a similar manner, the VantageScore is constantly evolving to portray a more accurate picture of a person’s financial health. It was developed by the three major credit bureaus. While still not as widely used as the FICO score, an October 2018 study by consulting firm Oliver Wyman found the use of VantageScore rose over 20% year over year, and was up more than 300% over the past five years. Like the FICO score, VantageScore has a scale of 300-850.

  • VantageScore 4.0 was designed with these changes in mind, and it gives those records less negative impact when calculating scores for consumers who have those records in their credit files. VantageScore 4.0 also penalizes unpaid medical collections less than other types of unpaid collections, and ignores unpaid medical collections less than six months old, to give insurance companies ample time to make payments. Consistent with the VantageScore 3.0 model, paid collections (including paid medical collections) are excluded in the VantageScore 4.0 model.

The most recent version is VantageScore 4.0. As is the case with FICO score 9, VantageScore 4.0 puts a lower weight on unpaid medical debt (medical debt less than six months old is completely disregarded). Both VantageScore 3.0 and 4.0 exclude paid collections from their model.

While VantageScore 4.0 debuted in 2017, 3.0 is still the most widely used model. The score takes the following factors into consideration:

  • Extreme Weight: Age and Type of Credit – This refers to your length of credit history and your account mix, and is also factored heavily into your 3.0 score.
  • Extreme Weight: Credit Utilization – The V3 score calculates your utilization percentage by dividing your balances by your available credit. Generally, you should keep your utilization under 30%.
  • High Weight: Payment HistoryVantageScore uses your payment history as the number one predictor of risk. Late payments can appear on your report for seven years.
  • Medium Weight: Total Balances – Refers to your total debt, both current and delinquent. As with credit utilization, the more you lower your debt, the higher chance you have of increasing your score.
  • Low Weight: Recent Behavior – How many accounts have you recently opened? Your recent behavior includes newly opened accounts and the number of hard inquiries recently.
  • Extremely Low Weight Available Credit – The amount of credit you have available to use.

MagnifyMoney’s parent company, LendingTree, offers a free credit monitoring service that uses the VantageScore 3.0 model.

Where can you obtain your credit score for free?

It used to be pretty difficult to obtain your credit score across all three bureaus for free. Now, several financial institutions offer consumers the chance to obtain their FICO scores at no cost. Here is a sampling of banks and credit unions that offer this service:

For Experian: If you have an American Express card, a Chase Slate account, or a credit card with Wells Fargo or the First National Bank of Omaha, you can get your FICO score from Experian. Discover offers an even better service, as anyone can sign up to view their Experian score at Creditscorecard.com, even if they do not have an account with Discover.

For Equifax: If you have a Citibank card, or an account with DCU Credit Union or PenFed, you can access your Equifax score for free. Keep in mind that Citibank uses a scoring model from 250 to 900 based on Equifax and the FICO Bankcard Score 8 model, which emphasizes credit card behavior.

For TransUnion: If you have a Barclays card, select credit cards with Bank of America or a Walmart Credit Card, Walmart MasterCard, or Sam’s Club Credit Card, you can access your TransUnion score.

Knowledge is power

The credit scoring system has a long way to go before it becomes transparent and accessible. Currently, it is up to lenders to use a national score, like the FICO score, their own internal credit score, or a mix of the two.

While it would be impossible to monitor all of your credit scores, there are ways to monitor the most important factors in every score. It’s your right to get annual access to a free copy of your credit report from each of the three bureaus. You can do this at annualcreditreport.com.

Even though no lender uses the same credit score model, all scores look at the same basic information, so taking steps to build and keep strong credit will benefit you no matter which score is being used.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Gretchen Lindow
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Gretchen Lindow is a writer at MagnifyMoney. You can email Gretchen at [email protected]

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What Factors Affect Your Credit Score?

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The 5 factors that determine your FICO score
There are five major components FICO uses to determine a credit score. Understanding the secret sauce can help you build a strong score and healthy credit report. While FICO is not the only credit scoring model out there, it is the most widely used by lenders. So a score in the 700s, along with a healthy credit report, should enhance the rest of your financial life by enabling you to get approved for top-tier financial products at a lower interest rate.
Here’s everything you need to know about the five pieces of the FICO-scoring pie.

35%: Payment history

This is the single most important part of your credit score. Quite simply, this looks at how many on-time payments you make. You will:

  • Get rewarded for on-time payments.
  • Be punished for missed payments. Not all late payments are created equally. If you are fewer than 30 days late, your missed payment will likely not be reported to the bureaus (although you still will be subject to late fees and potential risk-based re-pricing, which can be very expensive). Once you are 30 days late, you will be reported to the credit bureaus. The longer you go without paying, the bigger the impact on your score, so 60 days late is worse than 30 days late. A single missed payment (of 30 days or more) can still have a big impact on your score, shaving off anywhere from 60 to 110 points.

If you don’t pay a medical bill or a cell phone bill, your account may be referred to a collection agency. Once it’s with an agency, they can register that debt with the credit bureaus, which can have a big negative impact on your score. Most negative information will stay on your credit report for seven years. Positive information will stay on your credit bureau forever, so long as you keep the account open. If you close an account with positive information, it will typically stay on your report for about 10 years, until that account completely disappears from your credit report and score. If you don’t use your credit card (and therefore no payment is due), your score will not improve. You have to use credit in order to get a good score.

However, there is a big myth that you have to borrow money and pay interest to get a good score. That is completely false. So long as you use your credit card (it can be a small charge) and then pay that statement balance in full, your score will benefit. You do not need to pay interest on a credit card to improve your score. Remember: Your goal is to have as much positive information as possible, with very little negative information. That means you should be as focused on adding positive information to your credit report as you are at avoiding negative information.

30%: Amount owed

This part of your score will look at a few elements:

  • The total amount of debt you owe across all of your accounts. If you have a lot of credit card debt, your score can be hit.
  • In addition to the total amount of debt that you have, your utilization is very important.

To calculate utilization, divide your statement balance (across all of your credit cards) by your available credit. For example, if you have credit limits of $40,000 across four credit cards, and you have a total balance of $20,000 – then you have a utilization of 50%. That is high, and a high utilization rate is not good.

To have a good utilization score, you will want your total to be below 30%. However, the lower the, the better, so aim as low as possible here.

Why is utilization such an important concept? If you use every bit of credit made available to you, then it looks like you do not have self-restraint. Maxing out all  your credit cards is a big warning sign to lenders.

If you are able to restrain yourself and have a lot of available credit (that you do not use), then you are showing self-discipline.

It may sound strange, but one key to having a good credit score is having a lot of available credit and not using most of it.

15%: Length of credit history

This is the easiest part of the credit score to get right. So long as you don’t close accounts, every day this part of your score improves (because all your accounts become one day older).

FICO will look at the age of your oldest account, as well as the average age of all accounts. Closing a long-time account can ding your score if it shortens the length of your credit history.

10%: Types of credit in use

If you have experience with different types of credit (installment loans, revolving loans, credit cards, etc.), it’s better for your credit score than if you don’t have a variety of experience.

The most important product is a credit card. If you have a credit card and manage it well, you will be rewarded.

Other forms of debt that will affect your credit score include your mortgage payment, auto loan payment and student loan payments. These fall under the category of installment loans, rather than revolving credit, like a credit card. A varied credit history will include both revolving debt and installment loans.

10%: New credit

If you open up a lot of new credit in a short period of time, you will be sending a warning signal to the credit bureau. But this aspect of the credit score has inspired some unwarranted fear in some people. They are afraid to shop for the best deals, because they are afraid of what shopping for credit would do to their credit scores.

The FICO score will look at credit inquiries from the past 12 months. Lets break a few of the myths down now:

  • Checking my own credit report will hurt my score: FALSE! If you check your own credit report at www.annualcreditreport.com, it will not hurt your score. You can get this report for free across all three major credit bureaus once every year.
  • If I shop around for a good mortgage or auto loan rate, my score will get crushed: FALSE! Multiple inquiries for a mortgage or auto loan are usually treated as a single inquiry.
  • If I shop around for a balance transfer credit card, my score will get crushed: FALSE! If your score does decline, it probably will not decline by much. You can expect 10 to 20 points shaved off per credit application. But remember: You can apply for a balance transfer to help reduce your balance faster. When you open a new credit card and transfer your balance, you will be able to:
    • Have a lower overall utilization rate, because you have new credit available (and of course you will not use all of it!)
    • Pay off your debt faster, because the interest rate is lower. At the end of 12 months, your score should be even higher than when you applied for the balance transfer or personal loan.

Remember, too, that you can check to see if you have prequalified for any credit cards without triggering a hard pull on your credit (this means it will not appear on your credit report).  This is a great way to shop around for cards you are more likely to be accepted for without risking any kind of ding to your credit score. Keep in mind, though, that when you actually apply for the card, there will be a hard pull of your credit history, and your application is not guaranteed to be accepted. But overall, you shouldn’t fear applying for new credit — it’s more likely to help your score over the long run, even if there is a short-term ding.

One exception is when you are aiming to get a mortgage; if this is the case, you should hold off on applying for new credit, because any small change in your credit profile can cause problems with getting a mortgage loan.

Quick steps to building and keeping a good credit score

  • Use your credit card every month, but keep your utilization at least below 30%, and even less if possible. In other words, never charge more than 30% of your available credit, and aim to charge a lot less. You can reduce your utilization by (a) paying down your debt and (b) increasing the credit that you have available.
  • Make your payments on time every month. If you repeat these two things over time, you should eventually have a score above 700. However, if your score is below 700 and you want to improve it, you need to focus on:
  • Adding more positive information to your credit report
  • Getting your utilization below 30%
  • Dealing with the negative information

Where can I monitor my credit score for free?

There are several ways to get your FICO score for free, from the three main credit bureaus. Here are just a few:

  • If you have a Citibank card, or an account with DCU Credit Union or PenFed, you can access your Equifax score.
  • If you have an account with American Express, Discover, Wells Fargo or First National Bank of Omaha, you can access your Experian score for free. You don’t even have to have a Discover card in order see your Experian score; you can simply sign up at Creditscorecard.com.   
  • If you have any Barclays credit card, you can gain free access to your TransUnion score.  Bank of America offers access with select credit cards, and you can also view your TransUnion score if you have a Walmart Credit Card, Walmart MasterCard or Sam’s Club Credit Card.

There are also several services that offer free regular credit monitoring. MagnifyMoney’s parent company, LendingTree, offers free credit monitoring for anyone who wants to sign up. You’ll have access to your credit score and receive alerts to changes you should be aware of. You should know that LendingTree uses the VantageScore model, which is slightly different from the FICO score, although the score range is the same.

 

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Nick Clements
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Nick Clements is a writer at MagnifyMoney. You can email Nick at [email protected]

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