Like WalletHub, Credit Karma is a personal-finance website that provides free credit scores, credit reports and credit monitoring. It is safe and reputable but operates in a complex, ever-evolving market in which consumer confusion runs high. Such is why some might come to question the accuracy and effectiveness of the company’s services – especially given that they’re free.
The simple response to such uncertainty is that, yes, Credit Karma is both accurate and functional. It will tell you what your credit score is according to one model, as well as what’s on two of your major credit reports, thereby helping you better understand your finances. However, the longer answer includes some slight caveats that bear noting before basing important financial decisions on what the site tells you. Scores and reports based on week-old data and product recommendations based on advertising relationships might lead some to question the extent of the site’s ultimate effectiveness, for example, but others might consider such factors to be irrelevant to the big-picture benefit the site provides. We’ll explain more below, in the context of Credit Karma’s primary offerings.
Credit Scores & Credit Reports
Most questions concerning Credit Karma’s accuracy likely relate to credit scores. More specifically, how do you know the credit score you see on Credit Karma is your “real” credit score? Well, as you’ll see below, that’s really a matter of perspective.
- There Is No “Official” Credit Score: The notion that we have one “official” credit score from which other scores differ is a faulty one. To the contrary, there are more than 1,000 different types of credit scores in use today, meaning your score will inevitably vary from model to model, and the score that’s most accurate ultimately depends on a given situation.
- Lenders Use Proprietary Scores: No matter where you get your credit score — whether it’s from your credit card company or a provider like Credit Karma — it’s almost certainly not going to be the exact type of score used by any lender you might be working with. Most lenders use publicly available scoring models as the basis for in-house rating systems but apply proprietary modifications that can lead to drastically different final results. In other words, they take the scores that you and I can get and add a little of their own special sauce to make custom scores.
- Karma Offers VantageScore 3.0: Credit Karma uses the VantageScore 3.0 credit score based on your TransUnion and Equifax credit reports. That is why you see two different scores on your account. The VantageScore 3.0 model is among the newest, most predictive credit scores out there, with the ability to generate scores for millions more people than the models used by its biggest competitor, FICO. FICO scores, of which there are many varieties, have been around for a long time but are losing favor with many lenders due to their reliance on outdated metrics.
- Credit Reports Fuel Credit Scores: All credit scores have one thing in common: credit reports. The information on your TransUnion, Equifax and Experian credit reports is what credit-scoring algorithms analyze, and it’s largely the same across the three bureaus. Credit Karma accurately conveys what information two of those bureaus have on you, which ultimately leads to scores that are as accurate as can be.
- Timing Matters & You’re Working With A Delay: The one shortcoming that Credit Karma’s scores and reports have is an inability to keep you truly up to date on the status of your credit. Credit Karma’s credit reports and scores update only once a week and only if you log in, which means you could end up monitoring credit-building efforts on a delay or perhaps applying for a financial product at the wrong time. It also makes logging in to your account take a little while, as a new report must be requested from the credit bureau and compiled after your manual prompting.
Credit Karma’s free credit-monitoring service will notify you about any important changes to your TransUnion credit report, and it does a fine job in this respect. Any time your personal information is used to apply for credit, a new employer or address is added to your file, or a public record is registered, you will receive an email and perhaps a text message telling you about it. This provides helpful peace of mind at a time when identity theft is a real threat and good credit is a valuable commodity.
Product & Service Recommendations
Credit Karma’s advertising-driven recommendations are one aspect of the site that could be construed as potentially inaccurate or somewhat ineffective, depending on how you look at things. Not only does Credit Karma feature ads alongside users’ credit reports and scores, but the site also recommends products such as credit cards, auto loans and mortgages offered only by the small pool of its advertising partners. In other words, you’re being told which sponsored products — as opposed to which general products, sponsored or otherwise — would save you the most money overall.
Credit Karma therefore works in terms of saving you money but falls short in terms of maximizing savings.
Conclusion: Credit Karma is both accurate and effective. It does what it’s supposed to do in terms of informing you what your credit reports contain and how your credit score changes over time. It is not a panacea for a better financial life, however, as users still have to bring discipline, hard work and a grain of salt to the table to achieve the best results. After all, product recommendations based on advertiser status and credit data that refreshes only once a week are notable reasons to view the site more as a resource, rather than the source, for financial guidance. Besides, we’re obviously biased in saying this, but we believe WalletHub is a better solution.