CreditKarma is it Accurate? Many people use CreditKarma as website to help them meassure their possibility to obtain credit and ask themselves this same question.
We will review Credit Karma and see how it calculates your credit and why it is useful.
CreditKarma is a website dedicated to calculating and delivering online credit reports, and at the same time, it provides financial management through a platform. Its features also include a tool to identify and dispute credit report errors.
CreditKarma started in 2007 offering credit reports, and later evolved into a company that could provide financial advice, offer free tax fillings and even a high yield savings account.
Most of the people that use CreditKarma, use it as a tool to track their credit scores and to see what factors are keeping their credit scores low.
This is very helpful as before having these online tools you were at the mercy of a one-shot credit score that you could get at a bank without having much of a sense of how was it calculated and what could you do to improve your score fast.
Of course that every company that utilises credit does their own calculations and gives its own importance to the different factors that compound the credit score, but the most used ones are:
2.1 Payment History
At least 35% of your score depends on the ON-TIME Payment History.
IF you pay your credit cards, or the mortgage credit on time every month then you don’t have a problem. But let’s say that you forgot to pay on time once (Like most of us mortals could have done) this could have a negative effect on your score.
CreditKarma is it accurate?
Let’s see how this is calculated:
On Time Payments
_________________________ = % Paid on Time
Total Payments
Let’s say you have you’ve had your credit card for the last 5 years and missed one payment.
59 On Time Payments
_________________________ = 98.3% Paid on Time
60 Total Payments
If you look at the range for the credit calculation you are in Yellow which is not good.
2.2 Credit Utilization
This factor is almost as important as the precious factor. In this case, this factor accounts for at least a 30% of the credit score and accounts for how much money of your credit line are you using.
Let’s say you have a credit card credit limit of $100,000 and you ask for $9,000; then your credit utilization id 9% which is in the area of excellence because you have plenty of space for asking for more credit and the bank thinks that you are able to pay for this extra credit.
CreditKarma is it accurate?
If you have that same credit line and use $75,000 of credit line, then the bank assumes that the credit line you’re using is becoming riskier because you will not have space for asking more credit and if an emergency happens you could fall into default.
2.3 Length of Credit History
Other important factor is you credit history (or The Age of your credit).
Generally , the longer your credit is , the higher the credit score will be, because the models of Fico and VantageScore seems to favor credit ages of at least 11 years according to this website.
The lenght of the credit score is calculated on several factors, and these include:
- The Age of your oldest credit account
- The average Age of your credit accounts.
Some credit report agencies separately consider the age of revolving credits (e.g., Credit Cards) and installment Loans (e.g., car loans or mortgages).
2.4 The mix of Credit Types
The credit mix accounts for at least 10% of the credit scores.
This is a factor of the credit calculation that takes into account the mixture of different credits that a person holds at a certain given time, including student loans, car loans, credit cards, mortgages, consumer credits, etc.
This factor could become more important and have a larger impact on your credit score if you don’t have much credit history.
The credit mix is used to measure your money stability, the manner in which you handle your debts, if you’re paying on time or just asking for another credit to pay the last one.
Having a mixture of credits can have a positive impact on your credit score, it is not recommended to ask for more credits solely for improving your credit score.
2.5 Application Frequency
How many credit applications is too many?
Every time you apply for a credit of any form (Credit Card, Mortgage, Loan, Overdraft, Business credit, etc) your application will run a credit check by the lender (bank or financial institution).
This credit check will review your credit score to see how you manage your finances and will leave a note of whether you were accepted or not.
Every time you ask for a credit, the lender will review all the notes left by the previous credit checks, with the information they had at that time, seeing all the previous attempts to obtain credit.
If you made several attempts over a short period of time could mean that you are desperate to obtain that credit. This is when CreditKarma becomes more useful, as you can monitor your credit score before asking for a credit and it is a good way to avoid all the time and effort wasted.
“As a rule of thumb, you should wait at least 6 months to ask for that credit again”. That could increase your chances of getting that credit.
What could be the exception to the rule of thumb?
Well, you know that If you have marvellous credit (more than an 800 score), a high income and a history of on-time payments, you can apply for new credit more frequently and still get approved. That is because of all of what we have discussed before, you are a low-risk customer for the lenders so they will be more than willing to offer you new credit.
The credit ratings and credit reports you see on CreditKarma come directly from TransUnion and Equifax, two of Equifax‘s top three consumer credit bureaus. This gives us two separated calculations to be able to compare between them.
Both calculations (TransUnion and Equifax) uses the factors discussed in the previous section but they give different importance to them.
The atypical scoring model used by CreditKarma, coupled with the lack of information from Experian, the third of the top three credit reporting agencies, tends to distinguish CreditKarma‘s ratings from ratings received by other companies and financial institutions.
Since each scoring model may emphasize different aspects of your credit history, you may end up with different scores even if they are based on the same credit reports.
VantageScore can take into account the same factors as the other popular FICO scoring model, such as payment history, debt amounts, length of credit history, new credit, and credit combining another popular FICO scoring model, but each model weights these factors differently.
Understanding Different Credit Score Models
While your VantageScore and FICO scores are generally similar, the two scores are not identical; in some cases, there may be significant differences.
The formula that FICO uses to calculate your score has a slightly different weighting than the formula that Credit Karma uses to calculate your score, although the score is similar across these models.
The range of your VantageScore (such as “good” or “very good”) is more important than the exact number, which depends on the source and often fluctuates. Your score should be in the same range across different platforms, including the three major credit bureaus and their many competitors.
Accuracy of Credit Karma Scores
Credit Karma advertises that it provides a free credit score to anyone who requests it, offering access to an individual’s VantageScore 3.0 score. However, this is not the FICO score that the vast majority of lenders use to assess a person’s creditworthiness.
Does Credit Karma Offer FICO Scores?
Credit Karma does not currently offer FICO® scores. Nonetheless, the credit scores provided can offer valuable information about your financial health. Accounts are updated once a week, and Credit Karma only makes a “soft inquiry” on your credit to retrieve the necessary information.
This means that your credit score will not be affected by checking it through Credit Karma. You’ll need to sign up for Credit Karma and share sensitive information like your social security number and financial goals, but you won’t be asked for credit card numbers or account information. If you are looking for a loan, a service that provides you with your latest credit score as well as current loan offers in one convenient place can be extremely helpful.
Factors Influencing Your Credit Score
Regardless of the scoring model used, information such as an individual account’s payment history, number of accounts opened and used, percentage of credit utilized, and any negative credit issues are included in your credit score calculation. Different credit scoring models may weigh the information on your credit reports differently, but high-impact factors typically include your credit card usage, payment history, and any derogatory marks on your credit reports.
The choice of scoring model means that if you score well on one, you are likely to have a good credit score on others as well. These scores are accurate and reliable representations of your creditworthiness.
Benefits of Monitoring Your Credit Score Regularly
Regularly monitoring your credit score can help you stay informed about your financial health and identify any potential issues early on. Services like Credit Karma provide easy and free access to your credit information, enabling you to make informed financial decisions and take steps to improve or maintain your credit standing.
4.0 How does CreditKarma earns money if everything is free?
Well, First of all, CreditKarma is not charity.
They bring thousands of people with more than a couple million page views every month to check on their credit scores, so what they do is use that traffic to offer them financial solutions through their affiliate marketing partners.
They have reported being offering high yield savings accounts through a partnership with MVB Bank, credit cards that could fit your credit score and some other financial services.
CreditKarma is it accurate?
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