Credit karma score wrong

Are Credit Karma Scores Real and Accurate?

It seems too good to be true: Credit Karma will provide you with your credit score absolutely free. All you have to do is sign up at creditkarma.com, and you can see your credit score immediately. But everybody has heard the cliché, “You get what you pay for.” Is a free credit score really worth giving up your personal information, especially in an era when hackers are alarmingly successful at getting their hands on that personal data? Does the score hold up against what other creditors would use to judge your creditworthiness? Here’s a look at what Credit Karma provides and whether it is worth using its credit score service.

Credit Karma, according to its website, believes that you have a fundamental right to know and view your credit score. The logic is that armed with this knowledge, you’re more likely to pay your bills on time and avoid going into collections for debt, and you might waste fewer resources of the companies with whom you do business. In other words, if you know your score, you’re better off and so are those companies because they don’t have to spend money and time trying to collect what you owe them. Everybody wins!

But it’s not entirely an altruistic effort. Credit Karma is a for-profit business; sure, it is offering you something for free, but it is making money elsewhere.

The company’s revenue model for customers, posted online, reads: “When you access the free credit score, Credit Karma will show personalized offers to you based on your credit profile. These offers are from advertisers who share our vision of consumer empowerment. If you wish to take advantage of our offers, it is up to you. Credit Karma tries to give the power and the choice back to the consumer.”

Credit Karma makes its money in two ways. First, along with your credit score, it places advertisements on the page and hopes that you will respond to those ads. Second, because Credit Karma is pulling your credit score, its system knows a lot about you, and it can carefully tailor ads to your spending habits. More targeted ads are better for advertisers (they don’t waste money putting ads in front of people who would never use their services) and usually allow the advertising company to charge more per ad. With more than 40 million active users, Credit Karma has a healthy revenue model.

In sum, Credit Karma makes money by giving you a free score in exchange for learning more about you and charging advertisers to put ads in front of you. See Why Credit Karma Is Free & How It Makes Money for more on the topic.

Now that Credit Karma’s motivation for offering free credit scores is clear, it’s possible to judge the quality of the scores. If its business model relies on you returning to the site often, offering you an accurate, legitimate score is good business for them.

Nonetheless, we asked Credit Karma, “With all of the different scores out there, why should consumers trust that Credit Karma is providing a score that can be relied upon as an accurate representation of their creditworthiness?”

“The scores and credit report information on Credit Karma come from TransUnion and Equifax, two of the three major credit bureaus,” said Bethy Hardeman, chief consumer advocate at Credit Karma. “We provide VantageScore 3.0 credit scores independently from both credit bureaus. Credit Karma chose VantageScore 3.0 because it’s a collaboration among all three major credit bureaus and is a transparent scoring model, which can help consumers better understand changes to their credit score. In 2014, over 2,000 lenders, including six of the ten largest banks, used nearly one billion VantageScore credit scores to judge consumers’ creditworthiness.”

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You’ve probably heard of the FICO score, arguably the best known of the credit scores. It’s still the one that nearly every personal finance guru wants you to track. What many people don’t know is that FICO doesn’t actually collect your credit information. FICO creates a score by looking at your file from the three major credit reporting bureaus – TransUnion, Equifax and Experian.

VantageScore does the same thing as FICO – only differently. VantageScore boasts that its scoring model was actually created by the major credit bureaus.

The scoring model is now on its third version (VantageScore 3.0) since hitting the market in 2006. One of its features, according to Credit Karma, is that it scores up to 30 million more people than other models and can score people with little credit history, known as a “thin” credit file. See How Your VantageScore Credit Report Is Calculated for more details.

The number of banks using VantageScore, according to the company, increased 24% in 2014. However, more than 90% of lending institutions use the FICO score to make decisions, FICO reports. In 2014, FICO sold 11 billion scores – many more than VantageScore.

Whether or not you should invest a lot of time in figuring out which score is the best predictor of your credit is debatable. First, different lenders use different scores. You can’t predict which score they will pull. There are so many scoring models, there’s no practical way for you to keep track of – or even access – all of them.

Second, and probably more important, every score is likely in the same range.

“It can be surprising to know that there are potentially hundreds of credit scores,” says Hardeman. “However, credit scores are highly correlative. That means if you’re rated a ‘good’ in one scoring model, you most likely have a ‘good’ credit rating in all other models. Whether you’re building your credit from scratch, working on bouncing back after a hardship or just in maintenance mode, I recommend tracking one score for changes over time.”

Millions of people use Credit Karma to track their credit score. The company is highly transparent and offers a product through VantageScore that works well for tracking your score. But whether you use that information is up to you. Hardeman advises, “Stay proactive and monitor your credit regularly so you can catch inaccuracies or fraudulent information. Make sure you dispute these inaccuracies before applying for credit.”

Have a question? Have advice to share? The combined knowledge and experience of everyone in the Credit Karma community can help you. Enter your question or help others below to get started!

0 People Helped

Your Credit Scores Should Be Free. And Now They Are.

View your scores and reports anytime.

4705 People Helped

Did you read what Credit Karma is for when you signed up? Obviously not. Credit Karma is an educational site to teach people what to do to build a good credit score. IT IS NOT A CREDIT BUREAU so what is shown here is only an example for people to use when utilizing the financial tools on this site. No one else reads the information and it is not reported anywhere.

jwsister's response was:

0 People Helped

Then Credit Karma should NOT post a Credit Score at all, if they only want to be an educational tool. I do not see a disclaimer stating that the score is NOT A TRUE DEPICTION of your ACTUAL CREDIT SCORE. The TV advertisements lead you to believe that you can check YOUR CREDIT SCORES for free. My score is off by about 30 points.

So, when I signed up it should have stated that my scores are approximated and are in no way my actual score.

livy72's reply was:

Your Credit Scores Should Be Free. And Now They Are.

View your scores and reports anytime.

Please enter a response

The Credit Advice pages of the Site may contain messages submitted by users over whom Credit Karma has no control. Credit Karma cannot guarantee the accuracy, integrity or quality of any such messages. Some users may post messages that are misleading, untrue or offensive. You must bear all risk associated with your use of the Credit Advice pages and should not rely on messages in making (or refraining from making) any specific financial or other decisions.

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• Credit Karma Tax – 100% free to file federal and state returns, no matter what your tax situation is. Including 24/7 live chat, W-2 import making it easy to get your max refund.

• Spot potential ID theft – We’ll tell you when your info is in another company’s public data breach — and what you can do.

• Find $ that belongs to you – Search state databases for unclaimed money in your name. There’s over $40 billion waiting to be claimed!

• Get money-saving recommendations – Use your credit to qualify for lower interest rates and better credit card rewards.

• Monitor your report – Get alerted when there’s an important change to your reports and challenge errors right from your account.

• Review credit tips – Receive helpful recommendations matched to your profile.

Why Your Credit Score Might Be Wrong

The internet has some great credit score resources. You can get your credit score online for free. You can attend a meetup to talk about improving your score. And, you can even sign up for credit score dating websites (let us know how that goes). But can you get a free credit score that matches what your lender is using?

While sites like Credit Karma have become popular in recent years, they may not be giving you very helpful scores. Why? Because they aren’t providing FICO scores. We’ve talked a lot lately about new scoring models and changes to the industry, but for now FICO is still king. Let’s explain.

Your Credit Score on Credit Karma

Free credit score services like Credit Karma don’t typically give you a comprehensive analysis. These sites generally use a scoring model that is only based on one of the credit reporting agencies. Take a look:

FICO provides a score for each of the credit reporting agencies. Its competitor, VantageScore uses one score that incorporates data from all three CRAs.

Let’s imagine that you log into Credit Karma and see that your credit score is 760. Look at you! That is a fantastic score! According to our research, that would make you eligible for a 3.707% APR on a $200,000 30-year fixed mortgage.

The next day, you walk into the lender’s office, excited to get these great terms. You are shocked when the lender offers a 4.04% APR instead. This comes out to a difference of about $26 per month and totals over $9,000 in extra interest paid over the course of the mortgage. Why did this happen?

Your lender was using a FICO score, and according to his records your credit score was actually 740, not 760. While only a 20 point difference, this dropped you into a bracket with a higher interest rate. Check out the chart below that shows estimated mortgage terms by FICO credit scores:

Sites like Credit Karma and Credit Sesame offer what some call FAKO scores. A nicer term might be “educational scores.” But are these totally useless? Not exactly. We’ve shown that these scores aren’t as accurate as FICO, but they can give you a good sense of where you stand financially. If you have a high score (above 700), then you are probably doing well financially and will have a pretty good FICO score too.

But don’t rely on these FAKO scores to tell you what kind of terms you will get on a mortgage or other loan. Expect FAKO scores to be inflated, or higher than your actual FICO score. Also, keep in mind that there are multiple FICO scores. You probably have a dozen or so even though you haven’t seen them. There is a FICO score for each CRA, and FICO offers different scores for different loan types (car loan, mortgage, etc.)

Your Credit Score Starts with Your Credit Report

You need to understand that the first order of business is checking your credit report. As you know, Clearpoint recommends that consumers use annualcreditreport.com when obtaining a free credit report. After all, it is one of the 3 Simple Financial Strategies You Aren’t Using .

Use this website to check your report, and then dispute any errors with the bureaus immediately. These reports aren’t as fun and exciting as your three digit credit score, but they are probably more important. Remember, your credit report determines your credit score and eventually determines the rates you will receive.

And one more thing, be careful if you decide to pay for your credit score. According to the FICO website, many consumers pay for scores that aren’t even close to their real scores and aren’t used by lenders. FICO recommends that you only pay for FICO scores. If you don’t want to pay, use the free scoring websites as a guide and talk to your lender about specifics.

We want consumers to know about changes that are coming to the credit card industry, such as the new rules about credit checks for employment. And there are certainly changes coming that will affect how you view your credit score.

The FTC and CFPB have noticed that free credit reports and scores are confusing consumers. Consumers are paying for information that should be provided for free (credit reports) or is inaccurate (credit scores). Expect to see tighter regulations around these websites in the near future. And, expect to see a free annual credit score sponsored by the FTC. If this comes to fruition, you will have access to your credit score and report every year, free of charge. And, these scores will more closely reflect what you actually get from a lender.

In the meantime, continue to check your credit report and learn how to pay off debt. Doing these things will bring a boost to your credit score and your financial health.

Have a credit score story for us? Let us know in the comments below. Thanks for reading!

Thomas Bright is a longstanding Clearpoint blogger and student loan repayment aficionado who hopes that his writing can simplify complex subjects. When he’s not writing, you’ll find him hiking, running or reading philosophy. You can follow him on Twitter.

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2 responses to “Why Your Credit Score Might Be Wrong”

I have to agree with this article and the concept of FAKO scores vs FICO scores. My credit card company provides me with an actual FICO score and the number is way different than I see on Credit Karma. I’m of the opinion that Credit Karma’s distorted picture they provide of your credit is to help promote the “offers” on their site. They don’t actually let you see the raw report just their interpretation of what’s on the report. The amusing part of many of these offers is they pretend to be helpful. “You could save X amount per year refinancing with X company”. If you look at the interest rate however it’s higher. Not really helpful or good advice.

Moral of the story. Take free credit advice with a grain of salt. Also consider the motivations of the company providing that advice. They might be more interested in helping their paid advertisers make money than actually give consumers real advice that will save them money.

Really good points, John! On the one hand, it’s great to get free information, but those advertisements and offers can certainly be misleading especially for those consumers who don’t analyze all the implications. Thanks for stopping by and commenting!

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Copyright © 2018, Clearpoint Credit Counseling Solutions, a Division of Money Management International, Inc. All Rights Reserved. 501(c)(3) nonprofit organization. Licensed debt management services provider. We do not lend money. Not a loan company.

Credit Karma giving completely wrong score?

Thinks he should have been the one to kill Batman's parents.

The TransRisk score is calculated by TransUnion using their proprietary scoring model and is the original credit score provided on Credit Karma.

The VantageScore is calculated by TransUnion using the VantageScore model, developed jointly by all three major credit bureaus. This model introduces the first, consistent scoring methodology shared by all three bureaus.

What does that mean in comparison to a "normal9quot; Transunion score? That's essentially jibberish.

- Auto loans generally use 'auto-enhanced' credit scores, which are credit scores weighted toward how likely you are to pay an auto loan back. They're usually similar in range to your (full) credit score, but can vary a lot if you have a good history of paying back car loans and not others (or the other way around).



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