Advertiser disclosure

Credit Karma Review

When trying to build credit, it’s important to have access to your score to check your progress. Credit Karma has served as a free credit-monitoring tool for over 100 million members since it launched in 2007. The company offers credit scores, reports and insights to customers, completely free.

You might be wondering, “What’s the catch?” Is Credit Karma really accurate, and how do they make money? Let’s talk about what consumers should know before signing up.

Don’t miss: How long does it take to build credit?

How does Credit Karma find your score?

Once you sign up with Credit Karma, they’ll pull your scores directly from two of the three major credit bureaus– TransUnion and Equifax. These scores are subject to change every seven days when Credit Karma receives updates from TransUnion. However, it can often take about four to six weeks for lenders to report new information to credit bureaus. For that reason, it’s a good idea to check regularly to make sure you’re up to date.

Read more: Top 3 student credit cards

Why does your Credit Karma score seem too high?

Some customers have complained that the score they see on Credit Karma has been higher than the credit score that lenders tell them they have. One reason for this mismatch is that Credit Karma gives you your credit score using the VantageScore 3.0 model. Lenders, on the other hand, make 90% of lending decisions based on your FICO score.

FICO vs. VantageScore

Credit Karma’s chief consumer advocate says that the company chooses to use VantageScore credit scores for a couple of reasons. First of all, VantageScore was created as a collaboration among the three major credit bureaus. Secondly, it uses a more transparent scoring model, which allows consumers a better understanding of why their score has changed.

Your VantageScore credit score can also be calculated more quickly than your FICO score. Whereas a FICO score may take about six months of credit history to calculate, you can often get a number from VantageScore within a couple of months.

It’s also important to understand that there’s no such thing as an official credit score. Rather, there are many models used to calculate consumers’ scores based on their credit history.

Most models will base your rating on the same categories from your credit report, like payment history, amount owed and credit mix. However, they may weigh each area differently. Therefore, some of those scores are more than likely to differ in one way or another.

How much does the difference matter?

When it comes to credit scores, most lenders don’t care that much about the exact number. What matters most is the tier that your score falls into. Credit scores span a range from 300 to 850, and higher is always better. While the cutoffs are somewhat subjective, lenders will typically evaluate your credit-worthiness with a breakdown like this:

  • Below 600: Poor credit
  • 600-699: Fair credit
  • 700-799: Good to very good credit
  • 800-850: Excellent credit

Generally, even if your Credit Karma score isn’t an exact reflection of your FICO score, it’ll still fall within the same tier. For that reason, it’s still a useful tool for monitoring your credit activity and evaluating your progress.

Also see: Should college students have credit cards?

How does Credit Karma make money?

Many consumers have expressed suspicion about Credit Karma’s business model. Some insist that it can’t actually be free, or that there must be a catch. In reality, Credit Karma delivers on what it promises. For no cost at all, members access their credit scores, as well as personalized advice on how to improve them.

However, Credit Karma does have to make money somehow. In order to keep the service free for customers, the company uses user data to sell targeted advertisements. It also encourages members to apply for loans through its affiliates since it receives a cut from the transaction.

Some have criticized Credit Karma for advertising sponsored products, saying that bombarding customers with ads detracts from its credibility. However, as long as you take the product recommendations with a grain of salt, you can still benefit from the information and advice that Credit Karma offers.

Related: Top free checking accounts

Should you use Credit Karma?

If you’re trying to develop better habits when it comes to credit, Credit Karma is a great resource. Although it may differ slightly from scoring models that your lenders use, it still provides free credit reports, educational resources and financial tools. Using a service like Credit Karma can give you a great point of reference for where your credit score is at and how to improve it.

However, if you’re getting ready to apply for a loan or a mortgage, you’ll want to have a more accurate idea of your credit standing. Thanks to the Fair Credit Reporting Act, you’re entitled to a free copy of your credit report from all three credit bureaus every 12 months through Fortunately, during the COVID-19 pandemic, you can access your credit report for free every week.

Your credit score is an important indicator of your financial trustworthiness. No matter which model you’re using, its main goal is determining how likely you are to default on a loan. With this in mind, you’ll want to have as many tools at your disposal as possible, including Credit Karma.

Keep reading