Content of the material
- Comparing Nates Credit Scores on Credit Karma vs. Wells Fargo
- How to Get Your Free Credit Score or Report
- Does Checking Free Scores Hurt Your Credit?
- Targeted Offers, A User’s Perspective
- What Is Your Credit Score and How Is It Calculated?
- Alternatives to Credit Karma to Check and Monitor your Credit Score
- FICO vs. VantageScore: Which Is Better?
- Differences Between FICO and VantageScore
- Similarities Between FICO and VantageScore
- Distinguishing Features
- Using Mint’s Score Effectively
- Breaking Down FICO and VantageScore
- More financial advice
Comparing Nates Credit Scores on Credit Karma vs. Wells Fargo
As an example, we experimented to see how accurate Credit Karma’s scores were for our Co-founder, Nate Matherson. Here is a screenshot from Nate’s Credit Karma account:
Also on July 9th, 2019, Nate applied for a personal line of credit from Wells Fargo. Here is a screenshot from Nate’s Wells Fargo loan application:
As you can see in the examples above, Nate’s Experian FICO Score 9 was 25 points higher than his VantageScore from Transunion and 20 points higher than his VantageScore from Equifax.
In Nate’s case, Credit Karma was accurate enough to say that he had an excellent credit score, but wasn’t perfect.
Interested in viewing your free credit score with Credit Karma?
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How to Get Your Free Credit Score or Report
Many banks now offer the ability to check your credit score for free and enroll in credit monitoring, similar to what is available from the companies mentioned above. Start by checking with your bank to see what they offer.
The federal government allows you to sign up to receive a free credit report from each of the three credit reporting bureaus each year. By visiting AnnualCreditReport.com, you can request your reports. Note that credit reports do not usually contain credit scores.
Does Checking Free Scores Hurt Your Credit?
When a lender looks at your credit profile, it generates what’s known as a “hard pull,” which means it shows up on your credit report. Ten percent of your FICO score is based on the number of inquiries you have for new credit. When you’re applying for a mortgage loan, multiple inquiries made within 30 to 45 days usually only count as one, depending on which formula is being used.
If you’re checking your score for free, it typically counts as a “soft pull,” so it shouldn’t show up on your score. Getting your credit report for free, either through one of the credit monitoring services or AnnualCreditReport.com, also won’t cause any damage.
Mint is hands-down more adept with alerts than Credit Karma. Credit Karma has email alerts that tell you when your credit report changes, but it doesn’t have any mobile alerts for other financial transactions.
Mint does. You can customize alerts, too. For example, you could create an alert so that your phone notifies you whenever any transaction greater than $1,000 occurs. Mint can remind you when bills are due, when you’re nearing your budget in any given category, and more. It also alerts you when a new credit score is available.
Targeted Offers, A User’s Perspective
As for whether the targeted ads are truly useful from a user’s perspective, I’ve had mixed experiences with both sites.
Mint, for example, clued me in that I could bump up my credit score a few ticks if I opened a few more credit cards. So I did. I used one of Mint’s recommendations because I trusted that it knew a lot about my habits and personal financial situation. And it does, but there are limits. The card I got charges a foreign transaction fee (that’s on me for not reading all the fine print closely). I make a lot of credit card purchases that are not in USDs. Mint sees my transactions, but it wasn’t smart enough to weed out card offers that penalized me for shopping abroad.
Credit Karma at first impressed me with a little section it includes on its advertisements that lists the pros and cons of the offer. In particular, I noticed it had flagged foreign transaction fees as a con. However, Credit Karma messed up when it tried to play on my fears by telling me I could be saving around $700 if I were to get a credit card with a lower interest rate. Credit Karma didn’t seem to realize that I pay all my credit cards in full, and always have. So I pay $0 in interest. A new card with a lower rate wouldn’t do me any good.
What Is Your Credit Score and How Is It Calculated?
Before we dig into the accuracy of credit score sites, it is important to understand just what a credit score is and the different methods for calculating it.
A credit score is usually between 300 and 850, which indicates how likely you are to repay a loan or credit card. Lenders use your score to determine what interest rates to offer based on how likely it is you may or may not repay. They charge higher interest if you have a low credit score to make up unpaid loans.
There are several ways that credit scores are calculated. The traditional method is via generating a FICO score. FICO is an analytics software company that is best known for generating consumer credit scores.
FICO scores are calculated using the following information weighted differently:
- Amount owed
- New credit
- Payment history
- Length of credit history
- A mix of credit types
How these categories are weighted depends on how long you’ve been using credit, among other factors. The actual algorithm is proprietary and complex, but your score will always be based on information made available by the major credit bureaus (Experian, TransUnion, and Equifax). If each bureau has slightly different information about you, then your FICO score might differ.
It’s also worth noting there are different versions of FICO scores, and the company offers scores specific to certain types of lending. Your FICO score for an auto loan might be different from your FICO score for a credit card.
Another method for computing credit scores was developed by the three credit-rating agencies as an alternative to FICO. It is called VantageScore. Your VantageScore is calculated using a weighted average of:
- Your available credit
- Recent credit
- Payment history
- Credit utilization
- Depth of credit
- Credit balances
The greatest weight is placed on payment history and credit utilization, which is the same with FICO, but VantageScore’s model allows for credit scores to be produced for consumers who were virtually invisible to the FICO model, including those who are new to credit or who use credit infrequently.
VantageScore also provides reason codes to lenders, which give reasons for any particular score. This allows lenders to assess a consumer’s creditworthiness better.
When a lender does a credit check, they will use either FICO or VantageScore to obtain your credit score and determine what you qualify for.
Alternatives to Credit Karma to Check and Monitor your Credit Score
You can check your credit score in a variety of ways. For example, your credit union, bank or credit card issuer might offer a free credit score. Other third-party sites besides Credit Karma also provide credit scores.
Credit bureaus also offer credit scores, but there may be a fee. You can pay to get your VantageScore from Equifax or TransUnion. MyFICO.com offers FICO Scores for a fee. Experian provides your FICO Score 8, the score the majority of lenders use, for free.
Monitoring your credit can alert you of suspicious activity and show you how your use of credit affects your score. TransUnion and Equifax offer paid credit monitoring services. Experian Creditworks is free and gives you monthly access to your Experian credit report and FICO Score. There’s also a paid version that includes access to FICO Scores and credit reports from all three credit bureaus monthly, and to Experian credit reports and FICO Scores daily.
FICO vs. VantageScore: Which Is Better?
One credit score isn’t “better” than another. However, some 90% of credit decisions are made using a FICO Score. The FICO Score has been around since 1989; there are dozens of versions of it. Here’s a rundown of the differences and similarities between the two credit scoring models.
Differences Between FICO and VantageScore
In addition to the “base” FICO Score, of which the newest versions are FICO Score 9 and 10, FICO offers industry-specific credit scoring models designed for creditors such as auto and mortgage lenders. VantageScore does not have industry-specific credit scoring models.
There are also different FICO Score models for each of the three major consumer credit bureaus (Experian, TransUnion and Equifax). Each of the four VantageScore models can be used by any credit bureau.
To have a FICO Score, your credit report must show at least one credit account at least six months old and activity on at least one credit account during the last six months. To have a VantageScore, all you need is one credit account on your credit report, no matter how new the account is.
The two credit scoring models weigh the data in your credit report somewhat differently. For instance, payment history is more important to your FICO Score than to your VantageScore; credit usage and credit mix are more important to your VantageScore than to your FICO Score.
Similarities Between FICO and VantageScore
Both the FICO Score and VantageScore models use a credit score range from 300 to 850. Both consider the same general factors when assessing your creditworthiness: your payment history, how much credit you’re using, the length of your credit history, the different types of credit you have (such as loans and credit cards) and whether you’ve recently applied for new credit.
Mint gives account holders free access to their credit score and credit monitoring tools. You can view your TransUnion VantageScore as often as you would like, thanks to a partnership with TransUnion. Checking your credit score through Mint doesn’t negatively affect your credit.
Your score comes with a snapshot of your credit report, along with insights into how scores are calculated and steps you can take to improve your score. Mint also offers free credit monitoring through TransUnion. Users can sign up to receive real-time alerts whenever TransUnion receives new information from creditors.
- Link all of your financial accounts in one place
- Allows you to set up notifications and alerts
- Free credit score access
- The app is free
Using Mint’s Score Effectively
When you check your credit score through Mint, you also get a detailed breakdown of what’s in your credit report (which is not to be confused with credit score). Some of the categories within the report are your credit card usage, payment history, age of your credit, inquiries and negative marks. Mint also takes things one step further by explaining how the different information in your report impacts your score and offering advice on how you can improve it.
If you find errors or inaccuracies or there’s something that looks suspicious, there’s nothing Mint can do to change the information. You’ll have to contact Equifax to initiate a dispute or request that a fraud alert be placed on your account. When you trigger a fraud alert, the reporting bureau is required to notify the other two. If you’re dealing with incorrect information, however, you’ll have to initiate disputes with the other bureaus directly.
Breaking Down FICO and VantageScore
When most people think about their credit score, whether they know it or not, they are thinking about FICO. The Fair Isaac Corporation introduced FICO credit scores for consumers back in 1989, and since then the company has worked diligently to keep up with consumer behaviors and how those impact the FICO scoring calculations. Up until a decade ago, FICO was the only consumer credit score used by the three major credit reporting agencies, as well as the only score used by lenders and financial institutions.
In recent years, VantageScore has taken on the challenge of competing with FICO for its place at the top of the consumer credit scoring chain. By partnering with the three credit bureaus, VantageScore is able to use similar information and scoring models as FICO to generate individual credit scores. However, there are differences between FICO and VantageScore that consumers should be aware of.
First, it is important to understand that both the FICO and VantageScore methods draw from the same consumer information: payment history, credit usage, recent inquiries, length of credit, and type of credit. However, these details are gathered in different ways.
FICO bases its scoring on the credit reports of millions of consumers at a time, received directly from the three credit bureaus to create the most accurate scoring. VantageScore, on the other hand, uses consumer credit files in smaller sets to create its formula for scoring. Both end up with a score range of 300 to 850, but that’s where most of the similarities end.
VantageScore is more beneficial to consumers with a short credit history, as its scoring model only requires one month of activity and one account reported to the credit bureaus to create a score. FICO, conversely, requires at least six months of credit history and one account reported. This means, at least initially, a VantageScore may be far higher than a FICO score for the same individual.
Similarly, VantageScore and FICO have a difference of opinion when it comes to late payments. For FICO score calculations, payment history makes up 35 percent, although all late payments are viewed in the same way. VantageScore calculations penalize late mortgage payments more harshly than other credit accounts, dropping an individual’s VantageScore down more so than their FICO score.
Overall, viewing one’s credit score on Credit Karma may produce a different result than viewing it through one or more of the credit bureaus directly. The slight differences in calculations between VantageScore and FICO credit scores can lead to significant variations in scores, making Credit Karma less accurate than most may appreciate.
More financial advice
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