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Your credit score is a small number that can have a big impact on your life. If you are paying attention to your finances, then you will likely want to track your credit score over time. Credit Karma is one way to monitor your credit score.
Since your credit score is such an important financial tool, you want to ensure that the service you are using to track your credit score is accurate. Today we will take a closer look at Credit Karma and investigate how accurate the free service really is.
Why is it important to monitor your credit score?
A good credit score can make your financial life easier. You’ll have easier access to large loans such as a mortgage or auto loan with better terms. These terms can save you money over the long term and allow you to work towards your other financial goals such as retirement or building a safety net before deciding to work for yourself.
On the flip side, a bad credit score can lead to difficulty obtaining large loans with favorable terms. If you are able to secure a loan with bad credit, then you will likely be paying higher rates. Your higher payments can add up and make it more difficult to save for your other financial goals.
If you have plans to make a major purchase with the help of a loan, then you will want a good credit score. Consider whether or not you see a home purchase or auto loan in your future. If you do plan on making a major purchase with the help of a lender, then you will likely need a good credit score to make that transaction flow as smoothly as possible.
With that, is incredibly important to monitor your credit score. Not only can your actions have a big impact on your credit score, but also mistakes on your credit report can lead to a misleading score. For example, if a creditor accidentally reports a defaulted loan on your credit report, it could lead to a big drop in your credit score through no fault of your own. That could lead to problems securing a mortgage or auto loan down the line.
You can save yourself a lot of headaches by monitoring your credit score on a regular basis. If you can catch mistakes early, then you can take action to remove the false information from your credit report. If the mistake goes unnoticed, it can be more difficult to remove it from your credit history in the future.
Let’s take a closer look at Credit Karma to see if it is an accurate option for monitoring your credit score in a hassle-free way.
What is Credit Karma?
Credit Karma offers two main services. Not only can it help you to monitor your credit score, but it also provides a high yield savings account.
Here’s what is useful about each offering:
1. Free credit score monitoring
Through Credit Karma, you can access your credit score for free. After you sign up for the service, you will be able to check on your credit score regularly.
The service is very user-friendly, so it is easy to monitor your credit score.
2. Savings account to help you reach your money goals
The savings account offered by Credit Karma is another free tool. The account offers a high yield option to grow your savings. As of January 2020, the APY for the Credit Karma savings account is 1.80%. It is a highly competitive rate for the current market of high yield savings account.
Overall, the account offers some great features. The best of which is the complete lack of fees. You won’t even be required to maintain a minimum balance in order to reap the benefits of this account.
The savings account offered by Credit Karma is worth mentioning. A high yield savings account is a great way to build your savings. But the focus of this article will be the accuracy of their credit monitoring tools.
How does Credit Karma work?
When you sign up for Credit Karma, you will be asked to provide a variety of personal information. Although it will only take a few minutes to sign up for a free account, it will help to have your personal information ready. For example, you will need to provide the last four digits of your Social Security number so make sure to have that handy.
Once Credit Karma has your information, they will find your credit reports on TransUnion and Equifax. With the information from your credit reports, the company will provide your credit score for free. You can check back for your credit score whenever you’d like. However, the company typically sends out emails to alert you if there is a major change that you should be aware of.
Is Credit Karma really free?
Credit Karma likely sounds like a great tool to track your financial progress. But you might be thinking, ‘what’s the catch?’ If you are wondering how the company makes money, that is a fair question. After all, why would they provide all of this free information?
Well, Credit Karma does not make money directly from you. Instead, they make recommendations for credit products based on your credit history and interests. This might include credit cards, personal loans, mortgage lenders, and more. When you choose to follow through with one of Credit Karma’s recommendations, then they will receive a small commission. With those commissions, Credit Karma can continue to make its credit monitoring services free.
So any money that Credit Karma earns from your commission will not come out of your pocket. However, it is important to keep this funding method in mind as you review any recommendations from Credit Karma.
Since it is in their best interest for you to take action on the offers they present, make sure to read through the offerings with a critical eye. Do your own research to ensure that the credit products you apply for are truly in your best interest for your financial future.
How accurate is credit karma?
Credit Karma provides a fairly accurate representation of your credit score. However, there are a few limitations that you need to be aware of:
Credit Karma vs. Fico: Why is my Credit Karma score different from my FICO score?
As you seek out loans, you might realize that your Credit Karma score and the score that your lender looks at are different. That is because Credit Karma uses the Vantage 3.0 scoring model. Since most lenders use the FICO scoring model, you might run into some discrepancies along the way.
All in all, this is not the worst flaw in some situations. If you have a high credit score, then you will likely have a high credit score across the board. So the differences in the scoring models shouldn’t affect your loan application in a significant way.
However, if you have a borderline credit score, then it can be difficult to know where you stand with the lenders. Since one or two points could make or break your loan application in some cases, it is not an ideal scenario.
Credit Karma only factors in information from two credit bureaus
Equifax, TransUnion, and Experian are the three major credit unions. Each of these credit bureaus has your credit report on file to track your credit history. However, Credit Karma only factors two of these credit reports into your credit score.
Credit Karma relies on your credit reports from Equifax and TransUnion to determine your credit score. Since they leave out one source of information, it is possible that their scores are less accurate than if they used all three credit reports.
The system is not immediate
Credit Karma does not update your credit score instantaneously. First, your actions need to be reported to a credit bureau. Then, Credit Karma will use that updated credit report to adjust your score.
Based on that process, your credit score might not be updated immediately. If you make an effort to boost your score or do something to create a drop, don’t expect to see the reflection in your credit score overnight.
Is Credit Karma safe?
Based on the information available, Credit Karma is safe to use. The service is absolutely not a scam to steal your information or charge your credit card.
The only piece of information that might be difficult for you to pass along to Credit Karma is the last four digits of your Social Security number. Although it is likely engrained that you should never give out your Social Security number, Credit Karma will need this in order to find your credit report. Unfortunately, there is no other effective way to accurately obtain your credit reports.
Personally, I’ve been using Credit Karma for the past two years without any issues. Of course, there is always the threat of a data breach on any website that you work with. However, Credit Karma seems to have a good record of keeping its users’ data safe.
In my experience, the only negative part of Credit Karma is the number of emails they send to you about your credit score. At first, they send you a barrage of emails. However, you can go in and adjust your email preferences to avoid that in the long term.
If they do notice that your credit score has changed, they will send you an email to let you know. That is a helpful feature because most of us don’t make time to check out our credit score every single month.
How to improve your credit score
When you work to improve your credit score, you might hope to see an overnight improvement. Unfortunately, it can take months or years to see serious progress towards your target credit score. If you have credit mistakes in your past, they might hold you back for a few years.
At some point, your past mistakes will have less weight on your credit score but it important to know this as you work to improve your credit score.
The best place to start is by paying down your debts. Whether you try the snowball method or the avalanche method, find something that will motivate you to pay down your debts. In addition to paying down your debt, make sure that you are making on-time payments to your debts.
Don’t let a missed due date tank your credit score. If you can’t remember to make payments on time, then set up autopay for your accounts to avoid any problems.
If you need help building your credit score, then our credit building course may be able to help. It will walk you through the steps of building a better credit score, no matter where you are starting from.
If you are taking action to improve your finances, don’t stop with your credit score! You can make progress in multiple areas of your personal finance. Don’t let your past financial decisions hold you back from creating a worry-free future.