What Is Credit Karma?

Credit Karma is best known for its free credit scores and credit reports. However, it positions itself more broadly as a website that offers its users "the chance to build a better financial future."

To use Credit Karma, you have to give the company basic personal information, usually just your name and the last four digits of your Social Security number. With your permission, Credit Karma then accesses your credit reports, compiles a VantageScore, and makes it available to you.

VantageScore or FICO: Does It Matter?

VantageScore is not FICO. FICO stands for Fair Isaac Corporation, the biggest competitor in the business of creating scoring models that are used to rate the creditworthiness of consumers. To complicate matters, both update their models occasionally, and lenders use different versions with slightly different results.

You don't have just one credit score. You have many credit scores, each calculated by a lender based on one of many models or versions of models. The important thing is, they should all be in the same range, such as "good" or "very good."

Your score should be roughly the same on either model. One model may put slightly more weight on unpaid medical debt. One may take longer to record a loan application. But if your credit is "good" or "very good" according to one system, it should be the same in the other.

Other Services Credit Karma Offers

Credit Karma will access your credit information from TransUnion and Equifax, two of the three major consumer credit agencies. (The third is Experian.) It will come up with its own independent rating based on VantageScore. You will then receive your current VantageScore rating and the more detailed credit reports behind it.

In addition to this free service, Credit Karma has other related services, including a security monitoring service and alerts for when someone has conducted a credit check on you. This is not unique to Credit Karma: Many of the best credit monitoring services provide similar alerts and services.

When you share your personal information with Credit Karma, you can search for personalized offers for a credit card, a car loan, or a home loan, and your search won't pop up in your credit report on Credit Karma or anywhere else. A standard section of credit reports is "inquiries," which lists requests for your report from lenders you've applied to for a loan. Credit Karma allows you to limit the number of inquiries you make.

Credit Karma also offers personalized recommendations on money management. (Example: "Your car loan is 16%. You might be overpaying!")

Who Runs Credit Karma?

Credit Karma is a multinational company founded in 2007 by Kenneth Lin, Ryan Graciano, and Nichole Mustard. Today, Lin is chief executive officer, Graciano is chief technology officer, and Mustard is chief revenue officer.

In December 2020, Intuit, the company behind TurboTax, closed the acquisition of Credit Karma in for a total consideration of approximately $3.4 billion in cash and 13.3 million shares of Intuit stock and equity awards with a value of $4.7 billion.

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4. Bank of America

Bank of America offers eligible cardholders free access to their FICO® score. The score provided is based on your TransUnion® credit report and updated each month. Plus you will also have access to a couple of useful charts.

The first tracks your recent scores over time, so you can see how you’ve been performing month to month. This can be helpful if you’ve been working to boost your credit. The second chart will show national FICO® score averages. This allows you to compare your score against others.

What does a credit score mean?

Your credit score is a numerical representation of your credit report that represents your creditworthiness. Scores can also be referred to as credit ratings, and sometimes as a FICO® Score, created by Fair Isaac Corporation, and typically range from 300 to 850.

FICO® Scores are comprised of five components that have associated weights:

  • Payment history: 35%
  • Amounts owed: 30%
  • Length of credit history: 15%
  • How many types of credit in use: 10%
  • Account inquiries: 10% 

Lenders use your credit score to evaluate your credit risk – generally, the higher your credit score, the lower your risk may be to the lender. To learn more, view how your credit score is calculated.

Did you know? Wells Fargo offers eligible customers free access to their FICO® Score ― plus tools, tips, and much more. Learn how to access your FICO Score.

Which Credit Score Should You Check?

When you check your credit, you’ll likely receive either a FICO® or VantageScore credit score. Your score will depend on which scoring model is being used and which credit report is being analyzed (because your credit reports likely aren’t identical).

The type of score might not matter if you’re looking for an estimate of where you stand or want to track whether your score is going up or down. Fortunately, credit scores tend to move in a similar direction as they all analyze your credit reports with the same general goal in mind.

Creditors can choose which score to use, and they don’t have to disclose which of your credit reports or which score they are going to request ahead of time.

Knowing at least one of your general-use FICO® Scores, such as FICO® Score 8, could be helpful as creditors often use a FICO® Score when evaluating new credit applications. Also, many mortgage lenders use the earlier FICO® models mentioned above to comply with federal regulations. Knowing those three FICO® Scores could be helpful if you’re shopping for a mortgage.

2. American Express® credit cards

American Express gives cardholders access to their free FICO® score, as well as 12 months of FICO® score history. The FICO® score provided is based on your Experian® credit report. Your FICO® score is available through your online American Express account and gets updated periodically.

Does Credit Karma Hurt Your Credit?

No. Using Credit Karma doesn't hurt your credit. When you access your information on Credit Karma, it counts as a "soft" inquiry that isn't reported to the credit bureaus. A "hard" inquiry, such as a lender's credit check when you apply for a loan, is reported.

How Credit Scores and FICO® Scores Are Calculated

All credit scores, including FICO® and VantageScore®, are based on similar credit scoring models. They assess factors like your credit history, payment history, credit mix, and credit utilization ratio.

Here’s the FICO® scoring model:

FICO® score breakdown from MyFICO®.

If you’ve never used credit before, or have used it irresponsibly, your credit scores will be low or non-existent. A great way to build your credit from the ground up is with responsible use of a credit card, secured credit card, or credit builder loan.

For those of you simply looking for a boost, here are a few easy ways to improve your credit:

  • Make on-time payments: Above all else, pay your bills on time. Late payments are incredibly detrimental to your credit scores. To avoid them, we recommend setting up automatic bill payments.
  • Reduce your credit utilization ratio: You can do this by spending less, paying off a credit card with a personal loan, or even asking to raise the credit limit on your current cards. Just make sure you’re responsible with these changes, and avoid spending more money than you did before.
  • Keep your credit cards open: Closing a card will increase your credit utilization, and eventually reduce the length of your credit history — both of which will reduce your scores. Unless you’re paying an annual fee, we advise keeping old cards open (even if you never use them).

Fourth Stop: Contact the Expert (about freakin time)

Looking to sort through the credit score maze, I contacted personal finance guru and author of Your Credit Score, Your Money and What’s at Stake, Liz Weston and explained my situation to her.

First, Liz explained to me my Credit Sesame score. 

“It is true that the scores many consumers get aren’t FICOs, and these ‘consumer education’ scores can be 30 to 100 points higher than your FICOs.”

Okay, great!  Consumer education scores.  That helps a ton! I quickly began to realize there are several different types of credit scores.  So in fact, Credit Sesame’s credit score gives you a general range of where your credit score is at.  My score there wasn’t too far off, so at least it gave me a good starting point.   Now, what about the “mortgage report credit scores”

Liz had an idea but verified with a contact at FICO – nothing like going straight to the source!  She states,

“It was my understanding that most mortgage lenders use the classic FICO score, which is what you get at MyFico.com. The scores will be different day-to-day (and even sometimes intraday) because the information in your credit files is constantly changing.

I’m not sure what your banker means when he says Fannie and Freddie worked with the bureaus to changed the FICO formulas, since they (none of them, the agencies or the bureaus) wouldn’t be able to do that. That’s FICO (Fair Isaac’s) purview.

But this wouldn’t be the first time a banker or mortgage lender gave bad info. There’s a whole chapter in my credit scoring book devoted to myths perpetrated by those who should know better.”

She later confirmed that the banker was off in his statement.  In my banker’s defense, this stuff is really confusing – obviously.  Liz adds,

“Fannie and Freddie don’t do anything in concert when it comes to risk-evaluation tools, and neither do the bureaus, other than creating VantageScore as a would-be competitor to FICO (not that VS made much headway).

Fannie and Freddie are evaluating a version of the FICO called the FICO 8 Mortgage Score, but they have yet to tell the mortgage industry that they will accept that score instead of a classic FICO.

The FICO 8 Mortgage Score was introduced to lenders from Equifax in March but just became available to lenders from TransUnion and Experian last month, so your lender couldn’t have been using it to generate scores from all three bureaus earlier this year.

The FICO 8 Mortgage Score does give more weight to a person’s mortgage history, but not to collections. This is in line with other versions of the FICO, such as the one for the auto lending industry that gives more emphasis to a person’s auto loan history.”

There you have it. This is probably more information than you ever wanted to know about your credit score, but at least now I have a better understanding.

If you have a question for Liz, check out her site Ask Liz Weston.

  This lady knows her stuff.  Thanks Liz for helping out!

What can lenders see on your credit report?

Your credit report provides a detailed summary of your credit history. It includes your personal information and lists details on your past and current credit accounts. It also documents each time you or a lender requests your credit report, as well as instances where your accounts have been passed on to a collection agency. Financial issues that are part of the public record, such as bankruptcies and foreclosures, are included, too.

Credit Score Takeaways

The biggest thing I got out of this is that you have several different scores and they constantly change.  I don’t want you to become obsessed over your credit score like I did, but it is important for you to know.

As I went through this process, my intern was intrigued so he looked up his credit score and found it he was in the low 600’s.  Ouch!  What was the primary culprit? He didn’t have any credit cards or any credit history.  His parents had warned him of getting into credit card debt, so he avoided them.   Getting his credit score was an eye opening experience since he’ll be soon graduating and joining the real world.

Have you had any credit score surprises?  What did you do about it?

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