EDITOR’S NOTE: Credit Karma is a great product, but it’s incomplete. For a full overview of your credit check out FreeScore360. Unlike Credit Karma, they give you all 3 bureau credit scores and reports.
Building excellent credit is an important building block to financial success. But how can you build excellent credit if you don’t track it? Credit Karma makes it easy to track your credit score, your spending and more. They make it easy to refinance your debt and improve your credit score.
Credit Karma can be an excellent free tool for building financial wellness, but it has a few traps. Before you sign up for an account, here’s what you need to know.
Credit Karma: Free Credit Monitoring and Much More
Credit Karma started out as an online credit monitoring site. Over the past few years it expanded into a comprehensive free financial management services. Besides credit monitoring, CrediKarma offers loan calculators, loan shopping resources, spending trackers and more. This is a deep dive into their most important features.
Credit Monitoring: FICO or FAKO
Free credit score monitoring is Credit Karma’s flagship feature. They offer free snapshots of your entire credit report from TransUnion and Equifax.
They organize your credit information in meaningful categories like hard credit inquiries, new Accounts, and negative information. The categories that they use correspond to the Vantage 3.0 credit score.
Some users will struggle with the Vantage 3.0 credit score. It is not the FICO 8 credit score that you see most of the time. But is it a fake?
No. Banks use hundreds of different credit scoring models to determine your creditworthiness. The same bank will use a different credit score for an auto loan compared to a credit card. Credit scoring models consider information as varied as your income, your location and how you applied for credit.
The Vantage 3.0 credit score isn’t a fake score, but it isn’t the same as the FICO 8 credit score. Below, you can compare the Vantage 3.0 to the FICO 8. Vantage does not publish specific weightings for their algorithm, so the ratios are estimates.
The variables between the Vantage 3.0 and the FICO 8 differ somewhat. However, the biggest issue you might have with the scores are the treatment of collections accounts.
FICO 8 treats unpaid and paid collections the same. Vantage 3.0 does not factor paid collections into their equation.
Which score is right? It’s tough to say.
Nonetheless, tracking your credit score with both Transunion and Equifax is a useful tool. Tracking your credit score with Credit Karma will help you improve your credit behavior.
Plus, Credit Karma gives you access to most of your credit report from two bureaus. This can help you follow up on disputes, and keep track of excellent behavior.
Credit Score Simulation tools
Another feature we love is Credit Karma’s credit score simulator. It helps you understand how different actions will influence your credit score.
Allowing an account to go into default will drop my score from an excellent 793 to a very poor 541. Not sure whether to open a new account? This simulator can help.
Credit Karma doesn’t guarantee the accuracy of their simulator, but it is directionally helpful.
Car Insurance Comparison
For example, they make money through car insurance referrals. I tried out the car insurance comparison engine, and did not like it.
It was not flexible enough to change the deductible or the type of insurance that I wanted. Not only that, I found cheaper insurance quotes in 1-2 minutes from other sites. Credit Karma does many things well, but car insurance isn’t one of them. We recommend avoiding this feature for the time being.
Credit Karma also makes money when they refer you to a bank for lending. Throughout the website, you’ll see subtle pushes to borrow more money. This comes through referrals, and through loan and credit card comparisons.
For example, at the bottom of your credit report, you’ll see a credit card recommendation.
If you struggle with self-control, Credit Karma might tempt you to borrow beyond your limits. But their access to loans and credit cards could be a useful feature. They will compare and contrast loans and credit cards to find one that will help you meet your needs. The loan comparisons seemed light on information. I wish they compared more details right on the Credit Karma website.
On the other hand, the Credit Card comparison tool impressed me. The interface was easy to use, and they ranked cards based on user reviews. Most comparison sites only compare interest rates or bonuses. I liked that Credit Karma heavily factors customer experience into their recommendations.
Credit Karma has unfortunately buried one of its most useful features, a spending tracker. To find the tracker navigate to resources, then choose my spending.
Their spending tracker allows you to link all your checking and credit accounts. This will give you a clear idea of your spending. Credit Karma maps out spending month by month, and allows you to break it down easily.
Credit Karma’s spending tracker is every bit as good as Mint or Personal Capital’s. Not only that, its integrated on a site that has all your credit information.
The powerful spending tracker cements Credit Karma’s desire to help you achieve financial wellness. If you use nothing else from Credit Karma, check out the spending tracker. It can help you track expenses, so you can pay off debt faster.
Is Credit Karma Really Free?
“There’s no such thing as free lunch,” but Credit Karma doesn’t cost you any money. They offer free credit reporting from TransUnion and Equifax. Your Vantage 3.0 scores come at no charge to you.
Even the spending tracker costs nothing out of pocket.
But Credit Karma isn’t free. They make money by serving up credit card offers, loan offers, and insurance offers to you. In the name of financial wellness, you might end up going into debt.
Credit Karma is a great tool, but their subtle advertising might not be good for you. Before you join, consider how you will respond to their message.
Is my information safe?
When you join Credit Karma, you provide your social security number. You also allow them to display your credit information. This is important information that you need to keep safe. So is it safe?
Nobody can guarantee that your information is 100% safe. However, Credit Karma has state of the art security. This includes 128-bit information encryption, read only access to your information, firewalls and more. Credit Karma’s security measures parallel those of credit card companies.
Of course, a hacker could compromise your information. But anyone who uses the internet is at risk of identity theft. Using Credit Karma is no riskier than using online banking platforms. That is to say, the risk is real, but you need to decide if it worries you.
Will Credit Karma sell my information?
Credit Karma will not sell your private information, but they will use it. They use your information to recommend products and services that might interest you. If you choose to apply for a loan or a credit card Credit Karma will pass your information to the bank.
Credit Karma makes it easy to apply for new credit. That’s not necessarily great for you. Be sure to keep your new credit inquiries down if you want to keep your credit score high.
Credit Karma: The final verdict
Credit Karma has excellent credit monitoring and expense tracking features.
Tracking your credit and your expenses will unlock your financial foundation. Those features alone make Credit Karma a great option for most people.
However, you need to be a savvy user.
First, pay attention to the differences between the Vantage 3.0 score and the FICO 8 credit score.
Remember, Credit Karma shows you the less common Vantage 3.0 score.
You might need to watch your FICO 8 Credit Scores too.
Additionally, beware of the recommended products.
You should compare Credit Karma’s offers to offers you find elsewhere.
Be sure to think through the consequences of taking on new debt before you apply for it.
Have you tried Credit Karma yet? What did you think?