Since its founding in 2007, Credit Karma has gained popularity for providing credit monitoring tools and financial education to more than 100 million members as of publication. This site and app allow you to view your credit report and scores, find potential loan and credit card options that fit your financial profile and get advice that can help you improve your credit profile. However, there are some important things to know about how the site calculates credit scores and how you can use the site to boost your credit score. Read on to learn more about Credit Karma and the ways you can use this free credit and personal finance tool.
Understanding How Credit Karma Works
To gain access to its services, Credit Karma has you create an account, verify your identity using your Social Security number and sometimes send in more documentation like your driver's license or passport. The service uses this information to locate your credit files through two of the three major credit bureaus – Equifax and TransUnion – so that it can display your current credit reports along with estimated credit scores. Once you're logged in, you gain free access to a variety of financial services. It's free since the service gets paid for by advertisers to show you ads for suggested financial products based on your personal credit information.
It's important to note that rather than displaying Fair Isaac Corporation (FICO) scores that many people are familiar with, Credit Karma calculates a VantageScore for each of the two bureaus. While still a type of credit score that is helpful for general credit assessment, it's not used as widely by lenders. So, the scores you see likely aren't the exact ones lenders and banks will use for credit card and loan approval. Users get to refresh their credit information on a weekly basis to stay informed of how much their scores have changed and why they've done so.
While providing this financial information, Credit Karma will show tips on boosting your credit score and will suggest cards and loans that may appeal to you. The company gets a profit if you end up with a new card or loan as a result of these advertisements. It also offers various financial calculators, data breach monitoring tools and a credit protection service you can use to do things like lock your credit report or improve passwords to other financial websites. You can also find a large selection of articles that educate members about their credit and ways to improve credit health.
Read More: FICO Score vs Credit Score: What's the Difference?
Reviewing Credit Reports and Scores
One of the major features that Credit Karma offers is the ability to see credit reports and scores from Equifax and TransUnion. Whenever you log in to the service, it first checks if you're eligible for a new soft credit pull and automatically downloads the data to present to you on the dashboard. You'll see your VantageScores for the two bureaus immediately along with indicators showing whether your scores went up or down. Clicking on a specific bureau's score goes to a page that shows a list of these factors that are impacting your credit score along with links to learn more about how each applies to your personal situation:
- Payment history: Bearing the most weight on your credit score, this factor refers to the percentage of on-time credit and loan payments.
- Credit age: This is a medium-weight factor that's determined by averaging the ages of all your open accounts. The longer that is, the better your score.
- Total accounts: How many credit accounts you've had is one of the low-weight factors for your credit score. For this category, account diversity helps.
- Credit card use: Ranking second in importance, this factor refers to the percentage of credit currently used in relation to your overall credit limit. Keeping it low is ideal for a high score.
- Derogatory marks: Bankruptcies, collection actions and other derogatory marks have a high impact on your score negatively.
- Hard credit pulls: You usually get a hard pull when you apply for a new loan or card, but this factor has a low weight on your score.
Below this list, you can find a "View credit reports" link to see your complete credit reports with sections showing your personal information, accounts list, hard inquiries, collections and any public records. Clicking a certain account, inquiry or record will show more details such as the payment status, account opening date and inquiry date. It's a good idea to check all of this information for accuracy since mistakes can lower your credit score and hurt you when you apply for a loan. Credit Karma offers a dispute button on most credit report items so you can report issues conveniently.
Getting a Better Credit Score
As a Credit Karma member, you usually receive emails that keep you up to date on your credit and suggest personalized tips to improve your score. You can also see such tips on your credit report and score pages. However, it helps to know a few direct ways you can use this online service to boost your score and make the best use of the tools:
- Use the credit score simulator: This valuable tool shows your current score and allows you to simulate certain actions to see how your score would go up or down. If you have a high debt utilization ratio, you can try entering a large amount to pay off and see your score go up. If you're considering a new loan, you can simulate the new inquiry, account and balance and make sure that your credit doesn't get harmed. Simulating the strong effect of late payments and collections can motivate you to pay your bills on time.
- Keep an eye on your payments and balances: Using Credit Karma's credit report and score tools makes it easier to see how your balances look on a weekly basis as well as keep track of your payments. The service will let you know if a certain account is strongly impacting your score so that you can take action and reduce your debt.
- Consider matched accounts with caution: Your Credit Karma dashboard is filled with suggested accounts you could qualify for, and you'll see menus on the top of the page with various credit card and loan categories. While you could find options with low interest rates or desirable rewards, only apply for credit you absolutely need as the new account and inquiry will impact your score, along with the potential to get further into debt.
- Check for credit report accuracy: With two credit reports in hand, you can investigate regularly to see if problems like incorrectly reported payments or fraudulent accounts appear. You can then take action with your creditors and the bureaus to prevent further harm.
Read More: How to Quickly Improve Your Credit Score
Exploring Other Credit Karma Tools
While Credit Karma is mostly known for credit monitoring tools and new account recommendations, here are some of the many other features you might use to improve your financial situation or learn more about financial health:
- Financial relief assistance: This newer tool in response to the pandemic will help you find government programs, payment deferral opportunities and potential loans that can help you through tough times.
- Identity theft protection: The "Resources" menu has an option to monitor your identity online and find out if your passwords have appeared in recent breaches. You'll see unsafe passwords alongside a list of breaches. You'll find a button to activate a credit lock through Equifax and TransUnion so that nobody can apply for new credit in your name. You can always remove this later when you need to apply for something.
- Unclaimed money search: The "Resources" menu also shows a link to search for unclaimed money in your name in your state. This will take you to the right state website for a further search.
- Tax filing service: You can file your state and federal taxes for free through the website and get benefits like free auditing help and a maximum refund guarantee.
- Savings account: Credit Karma now offers a fee-free savings account with a more competitive interest rate than traditional banks and the potential to win money.
- Financial calculators: Alongside the credit score simulator, you'll find calculators for loan interest, debt repayment, mortgage refinancing and amortization through the "Resources" menu.
- Credit Karma: Your Credit Scores Should Be Free. and Now They Are.
- Credit Karma: How Credit Karma Works
- Credit Karma: About Us
- PC Mag: Credit Karma Review
- Business Insider: Is Credit Karma Safe? What You Need to Know Before Signing up
- Raleigh Realty: 7 Takeaways: How Accurate is Credit Karma?
- Money Under 30: Get A Truly Free Credit Score And More With Credit Karma
- Diamond Valley Federal Credit Union: Can I Trust Credit Karma?
- Credit Karma: How to Verify Your Identity With Documents
- NerdWallet: What Factors Affect Your Credit Scores?
- Credit Karma: Credit Score Simulator
- Experian: How to Improve Your Credit Score
- Credit Karma: Find the Support You Need Now With Your Relief Roadmap.
- Credit Karma: File 100% Free From Start to Finish.
- Credit Karma. "How to Read and Understand Your Credit Scores." Accessed Sept. 22, 2020.
Ashley Donohoe has written about business and technology topics since 2010. Having a Master of Business Administration degree, bookkeeping certification and experience running a small business and doing tax returns, she is knowledgeable about the tax issues individuals and businesses face. Other places featuring her business writing include Zacks, JobHero, LoveToKnow, Bizfluent, Chron and Study.com.