Credit Karma promises to provide you with your credit score and credit report for free. But is it giving you the same information that a lender will access if youre applying for a mortgage or a car loan? And for that matter, is it giving you anything that you cant get elsewhere?.
To answer those questions, it helps to know what Credit Karma is, what it does, and how its VantageScore differs from the more familiar FICO score.
Credit Karma is a popular free credit score and credit monitoring service. Over 120 million people use Credit Karma to check their credit scores, monitor their credit reports, and get recommendations for credit cards, loans, and other financial products.
But is it really free? What’s the catch with Credit Karma?
In this detailed guide, we’ll reveal how Credit Karma makes money and if there are any downsides to using their free service.
How Credit Karma Makes Money
The first question most people have is how does Credit Karma offer free credit scores and reports if they don’t charge for their service?
Here’s how Credit Karma makes money:
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Credit Karma displays targeted offers for credit cards loans, insurance and other financial products. If you click on an offer and get approved Credit Karma receives a referral fee from the lender.
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Credit Karma sells aggregated, anonymized data and insights about consumers’ financial behavior to financial institutions and advertisers.
To sum up, Credit Karma makes money by helping you find financial products and by selling information about its users. Credit Karma doesn’t cost anything to use, but you might see ads or deals.
This isn’t always a bad thing as long as you know how the free service works. Credit Karma is clear about how they make money.
The Pros of Using Credit Karma
There are many benefits to using Credit Karma, especially if you want to monitor your credit reports and scores for free.
Here are some of the pros:
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Truly free credit scores and reports. You can check your credit scores as often as weekly without paying anything or entering your credit card.
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Credit monitoring. Credit Karma alerts you of any big changes in your credit reports that could indicate identity theft or fraud.
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Educational tools. Credit Karma has tools to help you learn about credit reports, scores, the things that affect your credit, and more.
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Helpful visuals. Credit Karma presents your credit data in easy-to-understand charts and graphs so you can visualize credit trends.
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Simulations. You can pretend to do things that would change your credit scores, like getting a loan, opening a credit card account, or paying off debt.
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Access anytime. The mobile app makes it easy to check your credit scores and reports 24/7.
For the most part, Credit Karma aims to make credit information more transparent and accessible to consumers. The free access has helped many people better understand their credit.
The Cons to Watch Out For
However, there are some downsides to watch out for when using Credit Karma:
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Pre-screened offers. You’ll see a lot of credit card and loan offers, which could tempt you into applying for things you don’t need.
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Not the same scores lenders use. Credit Karma uses VantageScore credit scores, whereas most lenders use FICO scores, which can differ significantly.
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No Experian data. Credit Karma only shows Equifax and TransUnion credit reports. The reports don’t include potentially useful information from Experian.
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Biased recommendations. Recommended financial products are sponsored offers, so they may not be the best fit for your needs, just the ones that pay Credit Karma.
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Aggressive marketing. Expect a lot of emails and push notifications marketing Credit Karma services and financial products. You may find it annoying.
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Data privacy concerns. Credit Karma collects a substantial amount of personal and financial data. If you’re concerned about privacy, be sure to read their privacy policy closely.
The key is recognizing that Credit Karma ultimately exists to match you with financial products and sell data insights. The free credit scores serve that purpose. Make sure you’re comfortable with how they make money before using the service.
Who Should Use Credit Karma?
Credit Karma can provide a lot of value if used properly and with the right expectations. It’s best suited for:
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People who are new to checking their credit and want an easy overview of their credit standing.
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Those looking to monitor their credit reports for possible identity theft and errors.
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People aiming to improve or rebuild their credit who want to track score changes over time.
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Anyone who prefers free access to paid credit report services.
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Those who find the charts, graphs, simulations and explanations helpful for understanding credit.
Who May Want to Avoid Credit Karma
On the flip side, Credit Karma may not be the best option for:
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People needing an accurate credit score for an upcoming mortgage or auto loan application. The VantageScore won’t match most lenders’ FICO scores.
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Those who don’t want to see advertisements and offers. The marketing may be distracting or annoying.
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People concerned about privacy of their financial data.
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Anyone seeking comprehensive budgeting tools or full-service financial planning. Credit Karma isn’t a replacement for Quicken or Mint.
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Those easily tempted by credit offers. Seeing a lot of pre-screened offers could lead you into debt.
The Bottom Line
Credit Karma provides legitimate free access to credit scores and reports. However, it’s not completely without caveats.
You need to go in understanding the business model, recognizing it’s not the same as the score lenders use, and being comfortable with the marketing approach.
If you use Credit Karma wisely—mainly monitoring for credit report errors and keeping an eye on trends—it can be a valuable free tool. Just be an informed consumer when it comes to any credit offers.
The catch is that you have to deal with some advertising and less privacy. But for most people, it’s an acceptable trade-off for access to free credit scores and reports provided in an easy-to-use format.
References
https://www.creditkarma.com/credit/i/is-credit-karma-accurate
Similarities Between FICO and VantageScores
Both FICO and VantageScores have the same purpose: to help lenders judge how much of a risk you might pose. Important similarities include:
- They are based on information from the same credit bureaus (with the exception of Experian, which is used only for FICO scores).
- Both consider the same basic factors in determining your score, although they weight them somewhat differently. For example, FICO and VantageScore both assign the greatest importance to your payment history, although their most widely used models weight it at 35% and 40% respectively.
As a result, your credit scores should be in the same general range, if not identical.
Your credit score is only as accurate as the information thats used to compute it. So its worth checking your credit reports periodically for any errors that may be dragging your score down. You can obtain copies for free at AnnualCreditReport.com.
Key Differences Between FICO and VantageScores
The differences between the FICO scores and VantageScores are relatively minor:
- FICO remains the most widely using scoring model, so a lender may be more likely to consult it than your VantageScore.
- VantageScores, as mentioned, are designed to rate a greater number of new or infrequent credit users, which can be an advantage to would-be borrowers who have not yet established much of a credit history as well to as lenders that are attempting to assess their creditworthiness.
BE CAREFUL USING CREDIT KARMA – WHAT YOU SHOULD KNOW
FAQ
Is Credit Karma free?
Screen grab from Credit Karma’s website. Credit Karma shows users free credit scores from two of the three credit reporting bureaus: TransUnion and Equifax. Some websites offer “free for the first month” deals, then charge $19. 99 per month forever after. Credit Karma, however, is one of the good guys. Their free credit score service is really free.
Does Credit Karma make money?
Concerns often arise over how it makes money, data privacy, and discrepancies between its credit scores and those used by lenders. Since its launch in 2007, Credit Karma has been a key player in personal finance, offering free credit scores when most services charged for access.
Where does Credit Karma come from?
That’s a short answer. Credit Karma gets its scores and reports from TransUnion and Equifax, two of the three main consumer credit bureaus. The credit scores and reports you see on Credit Karma should be a true reflection of what the credit bureaus say about you. This means a couple of things:
Does Credit Karma reflect my credit information?
Credit Karma’s credit scores and reports should match the information that the credit bureaus have sent about you. This means a few things. First, the scores we give you are real credit scores from two of the biggest consumer credit bureaus. They are not just guesses about your credit score.
Why do I need Credit Karma?
Other factors may include: your credit profile and what products we think you want. It is this compensation that enables Credit Karma to provide you with services like free access to your credit scores and free monitoring of your credit and financial accounts.
Are credit scores on Credit Karma useless?
You may have read reviews that say the credit scores you see on Credit Karma are useless because they’re not FICO® scores. Though Credit Karma does not currently offer FICO® scores, the scores you see on Credit Karma (VantageScore 3.0 credit scores from TransUnion and Equifax) provide valuable insight into your financial health.
Is there a risk to using Credit Karma?
The service doesn’t hurt your credit score because it counts as a self-initiated inquiry, which is a soft credit inquiry.
Can Credit Karma be trusted?
How far off is Credit Karma from your actual credit score?
How Many Points Off Might Credit Karma Be? The difference between your Credit Karma score and lender-pulled scores typically ranges from a few points to around 20-50 points, though larger variations can occur. The most significant differences usually stem from: Missing information from Experian.
What is the Credit Karma controversy?
The FTC took action against Credit Karma in 2022, alleging that the company told consumers they were “pre-approved” and had “90% odds” of approval to entice them to apply for credit card offers that, in many instances, they ultimately did not qualify for.