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Credit Karma gives you a free copy of your credit score just for signing up, but it isn’t necessarily the same score that your future lenders will use.
You might be wondering about your Credit Karma score vs. your actual score.
What we’re about to show is that, in fact, the score that Credit Karma gives you is often the very score that your future lenders will use.
Which Credit Score Does Credit Karma Use?
Credit Karma partners with VantageScore and gives users their VantageScore 3.0 for free. They pull your credit report from the Equifax and TransUnion credit bureaus. That way, you can see your score based on the credit history in both.
Contrary to popular belief, every consumer has a lot more than one credit score. There are many different scoring companies, and they each have multiple versions of their proprietary credit scoring models.
To top it off, lenders can apply those models to any of your credit reports from the three major credit bureaus (Experian, Equifax, and TransUnion), each of which has a slightly different credit file for you.
That creates the potential for countless versions of your credit score, but lenders focus almost exclusively on the ones that come from two primary companies: FICO and VantageScore.
In the 1990s, your FICO scores were your “real” scores because they had a near monopoly on the credit score market. Even now, (according to FICO) “90% of top lenders” use FICO scores.
But times are changing. Many lenders use VantageScore to make loan approval decisions. The VantageScore has wide adoption, and it’s growing every year.
According to VantageScore Solutions, more than 2,600 financial institutions use VantageScore. Their homepage states, “Nine of the 10 largest banks and 43 of the 100 largest credit unions used VantageScore credit scores in one or more lines of business.”
The Difference Between Your FICO Score and Your VantageScore Credit Scores
VantageScore 3.0 is a commonly used score among free credit monitoring tools. But it might not be the one that your lender uses to decide on whether to approve your loan application.
FICO and VantageScore both have different credit scores. They also have different formulas for calculating your creditworthiness, which means Credit Karma’s score might be a little different from the ones that your bank or credit card company use.
For example, your payment history refers to how consistently you pay each monthly payment on time and in full. The credit factor is worth 35% of your FICO Score 8, but 40% of your VantageScore 3.0.
The two models treat credit utilization, your total revolving debt balance divided by your total credit limit, differently as well.
It’s worth 20% of your VantageScore 3.0, where it stands as its own factor. Meanwhile, it falls under the amounts owed factor in the FICO Score 8 model, which is worth 30% in total.
As you can see, there are differences between the two models, but they’re usually not too significant. You’ll generally be in the same credit score range under both.
If you’re just checking your score periodically for generic credit monitoring purposes, Credit Karma’s VantageScore 3.0 should be close enough to your other credit scores to be satisfactory.
Limitations of the Credit Karma Credit Score
Monitoring your credit is a good practice, especially since it can notify you of any potential problems before they develop into something significant, like identity theft.
Checking your Credit Karma credit score is a great way to stay on top of the updates to your file, but it’s not perfect. Here are the most significant limitations to its service.
It Only Shows You Information From Two Credit Bureaus
Unfortunately, Credit Karma only provides your score using data from two of the three major credit bureaus: Equifax and TransUnion. If you’re planning to apply to a lender who uses Experian, you could be in for a surprise.
After all, shifting even one variable in a formula can make a significant difference. Likewise, even one change to your credit report can make a meaningful impact on your score.
While your credit reports are usually similar, there can be differences. In some cases, your credit scores can vary significantly from credit bureau to credit bureau.
It Uses VantageScore 3.0
VantageScore 3.0 is not necessarily the score that your next potential lender will use when you apply for new financing.
That’s not a big deal if you’re just checking in on your credit periodically to monitor your progress.
However, if you’re going to be applying for a significant credit account or go interest rate shopping with a mortgage lender, you want to make sure you check the score that’s closest to what your lenders might use.
For example, you can check both your VantageScore 3.0 credit score and your FICO Auto Score 8 from each credit bureau if you’re about to go car shopping. There’s no guarantee that your lender will use either one, but the score that they do use will probably be pretty close to at least one of those.
According to the Wall Street Journal, new regulations will be going live soon that will require mortgage lenders to use both your VantageScore 4.0 and your FICO Score 10T in their underwriting decisions.
For many people who don’t currently own homes, this is great news. These two new credit scoring models take into account on-time rent payments and utility bill payments that get reported to the credit bureaus.
So if you’ve been using rent reporting services or a utility bill reporting service, a flawless bill payment history can now help improve your odds of qualifying for a home loan.
Your Credit Scores Don’t Get Updated Immediately
Another downside of checking your credit score through a third-party website like Credit Karma is that your scores don’t update in real-time. They can only show you the impact of the changes you’ve made once they get word of them, which can take some time.
For example, say that you successfully pay off a credit card account that’s been holding your score down for months. You won’t see the improvement in your score through Credit Karma until all of the following events occur:
- Your credit card issuer reports the updated balance to the credit bureaus
- The bureaus update your report with the new credit information
- Credit Karma checks your credit report and sees that there’s been a change
As you can imagine, each stage of this process takes time. Lenders generally send an update to the credit bureau or bureaus of their choice every 30 to 45 days, and while the report should show that new information quickly, it might not be instantaneous.
Credit Karma claims that it checks your TransUnion credit report for updates daily, but it only does so with your Equifax report every seven days, at most.
As a result, if you happen to make a change to your credit profile at the wrong time with a lender who only reports to Equifax, it might take you upwards of 52 days to see the change reflected in your Credit Karma credit score.
How Credit Karma Works
When Credit Karma says they provide you with a free credit report and credit score, don’t worry – they mean it. You’ll never have to open your wallet to pay for any of the services they offer on their site.
Other sites that let you check your score may lure you in with an initial free credit score, then try to upsell you on a premium account or a credit report. Credit Karma won’t, which is refreshing.
That said, they are a business, and they have to make money somehow. There are two primary ways that they do so.
First, Credit Karma receives a commission when users sign up for credit cards, installment loans, or other products through their site.
That’s why they push as hard as they do to get you to sign up for a credit card, personal loan, or insurance policy through them.
Credit Karma is pretty upfront about this fact, but the second way they make money is a bit more roundabout. They’re probably profiting off of your personal data somehow.
A lot of sites like these claim that they don’t sell your private information under any circumstances.
Credit Karma is one of them, but they’re now a subsidiary of Intuit, which lists thirteen distinct instances in which they’ll share your data with third parties on their privacy page.
Should I Use Credit Karma?
For a free resource, Credit Karma provides a lot of value. You can get access to your credit score, credit report, and their credit monitoring service without even giving them your credit card information.
If you just want to stay on top of your credit score as you try to improve it, then Credit Karma will probably suit you just fine. In fact, it doesn’t matter too much which score you use in that case.
You only need to track the changes in your score at that point. You don’t necessarily care about pinpointing your actual score.
However, if you’re going to be applying for a significant credit account anytime soon, like a car or home loan, it’s worth taking the time to get your actual FICO score through another source.
One of the best places to get your FICO score is through Experian. Not only do they give you your FICO Score 8 for free, but they’ll base the information on your Experian credit report (obviously).
If you want a more holistic picture of your credit score, you can combine Experian with Credit Karma. You’ll have a score from each credit reporting agency and both FICO and VantageScore.
It’s worth noting that using these services will never trigger a real credit check. That means checking your score through them won’t initiate a credit inquiry or hurt your score like it would if a financial institution pulled your info because you applied for an account.
Why Does Credit Karma Provide You With a Free Score?
Credit Karma can afford to provide you with a free VantageScore credit score because they profit off you in other ways. First, they make a commission anytime someone buys a credit card, loan, or insurance product off their site.
Second, they very likely make a profit off of all the private data they get from you. Credit Karma, as an extension of Intuit, may collect all of the following information on you:
- Identification information such as your name, Social Security number, and driver’s license number
- Share your credit scores and report data with lenders that may want to send you offers
- Record which credit cards or loans you apply to, and whether you get accepted or rejected
- Glean location-based information from when you use the app
That barely scratches the surface. Their privacy page includes a dozen other kinds of information they gather, plus a half dozen ways to get it that go beyond accepting the information you provide.
The rest of their page also goes into detail about the various situations in which they can share your personal information, including the catch-all: “with your consent.”
Note that simply checking yes on a random terms and conditions update could easily constitute giving consent.
All in all, Credit Karma is a great resource to get some of your credit scores for free. Just make sure you’re well aware of their privacy implications when you sign up for their services.
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Nick Gallo is a Certified Public Accountant and content marketer for the financial industry. He has been an auditor of international companies and a tax strategist for real estate investors. He now writes articles on personal and corporate finance, accounting and tax matters, and entrepreneurship.