Are Credit Karma Scores Accurate?

Credit Karma’s promise is to provide you with your credit score and credit report for free. But is that really worth giving up your personal and financial information? Is Credit Karma giving you precisely the same information that a lender will check if you’re applying for a mortgage or a car loan? And, for that matter, is it giving you anything you can’t get elsewhere?

First, you need to know what Credit Karma is and what it does, and how its VantageScore differs from the more familiar FICO score.

What Is Credit Karma?

Credit Karma is best known for its free credit scores and credit reports. However, it positions itself more broadly as a website that offers its users “the chance to build a better financial future.”

To use Credit Karma, you have to give it basic personal information, usually just your name and the last four digits of your Social Security number. With your permission, Credit Karma then accesses your credit reports, compiles a VantageScore, and makes it available to you.

VantageScore or FICO: Does It Matter?

VantageScore is not FICO, a for Fair Isaac Corp. They are the two biggest competitors in the business of creating scoring models that are used to rate the creditworthiness of consumers. To complicate matters, both update their models occasionally, and lenders use different versions with slightly different results.

Your score should be roughly the same on either model.  One model may put slightly more weight on unpaid medical debt. One may take longer to record a loan application. But if your credit is “good” or “very good” according to one system, it should be the same in the other .

What Else Credit Karma Offers

So, Credit Karma will access your credit information from TransUnion and Equifax, two of the three major consumer credit agencies. (The third is Experian.) It will come up with its own independent rating based on VantageScore. You will then receive your current VantageScore rating and the more detailed credit reports behind it.

More Credit Karma Services

Credit Karma has other, related services, including a security monitoring service and alerts for new credit checks on you.

And, now that it has your personal information, you can search for personalized offers for a credit card, a car loan, or a home loan, and your search won’t pop up in your credit report on Credit Karma or anywhere else. (A standard section of credit reports is “inquiries,” which lists requests for your report from lenders you’ve applied to for a loan.)

Credit Karma also offers personalized recommendations on money management. (Example: “Your car loan is 16%. You might be Overpaying!”)

Who Runs Credit Karma?

Credit Karma is a multinational company founded in 2007 by Kenneth Lin, Ryan Marciano, and Nichole Mustard. Today, Lin is chief executive officer, Marciano is chief technology officer, and Mustard is chief revenue officer.

Intuit, the company behind TurboTax, announced in February 2020 that it planned to acquire Credit Karma for about $7.1 billion in cash and stock.

How Credit Karma Makes Money

Credit Karma’s business model is not entirely altruistic. It is a for-profit business that makes money by giving you a free credit score in exchange for learning more about your spending habits and charging companies to serve you targeted advertisements.

Credit Karma places advertisements in front of its users, hoping that they will respond to them by clicking on them. Many of these advertisers are lenders, and Credit Karma may earn a fee if you apply through one of its links.

Your personal data is valuable stuff to advertisers, and they pay more to target it. With more than 100 million users, this is a healthy revenue model for Credit Karma.

Is Credit Karma Accurate?

Investopedia reached out to Credit Karma to ask why consumers should trust Credit Karma to provide them with a score that is an accurate representation of their creditworthiness.

Bethy Hardeman, chief consumer advocate at Credit Karma, responded: “The scores and credit report information on Credit Karma comes from TransUnion and Equifax, two of the three major credit bureaus. We provide VantageScore credit scores independently from both credit bureaus. Credit Karma chose VantageScore 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.”

While the FICO score is arguably the best-known credit score (and the one that nearly every personal finance guru will advise you to track), many people don’t know that FICO doesn’t actually collect information.

FICO is a model used to create a score by looking at your files from the three major credit reporting bureaus. VantageScore follows much the same process, except that its scoring model was actually created by the credit bureaus.

Although VantageScore is less known to the public, it claims to score 30 million more people than any other model. One advantage is that it scores people with little credit history, otherwise known as having a “thin” credit file. If you’re young, that could be important.

Although both the FICO Score and VantageScore use a credit range of 300 to 850, there are some key differences in how the two scores are calculated. For example, FICO gives more weight to a consumer’s payment history, while VantageScore emphasizes total credit usage and balances.

FICO vs. VantageScore: Which Is Better?

Different lenders use different scores. Because you can’t predict which score they will choose, it may not matter which score you rely on–FICO or VantageScore . There are many other scoring models and no practical way for you to keep track of or access all of them.

Most importantly, every one of your credit scores should be in the same range.

Credit Karma’s Hardeman recommends picking one and sticking with it. “It can be surprising to know that there are potentially hundreds of credit scores,” she says. “However, credit scores are highly correlative. That means if you rated ‘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.”

Credit Karma Limitations

The first question is whether you need Credit Karma’s services, free or not. And that may depend on how urgently you need detailed information on your credit status. Remember:

• You have a legal right to a copy of your credit score and credit report from each of the three credit bureaus once every 12 months.
• Many banks and lenders offer account holders access on demand to their credit scores. For example, if you have an American Express card, click on Account Services to view your FICO score and your FICO history.

That’s enough for most of us most of the time. If you’re about to apply for a mortgage, or you’re working to improve your credit rating, or you want the related services Credit Karma offers, you may want this access to your credit report and to the related services the company offers.

Your FICO Score May Differ

Credit Karma uses two of the three major credit bureaus and scores your creditworthiness according to the widely-used (but not quite as widely used as FICO) VantageScore system. Your score should be within the same range as everywhere else, including the major credit bureaus and its many competitors.

On the customer review site ConsumerAffairs.com, some people have reported that their Credit Karma score is quite a bit higher than their FICO scores. Whether these posts are reliable is unknown, but it is worth noting.

If your Credit Karma score isn’t accurate, the problem is probably elsewhere. That is, one of the bureaus made an error or omitted information. Or, the information might have been reported to one bureau but not others.

Your Credit Karma Score May Be Insufficient

Credit Karma updates its scores once per week. For most people that’s plenty, but if you’re planning to apply for credit in the near future, you may need a more timely update.

Although VantageScore’s system is accurate, it’s not the industry standard. Credit Karma works fine for the average consumer, but the companies that will approve or deny your application are more likely to look at your FICO score.

Credit Karma May Encourage Borrowing

Credit Karma’s business model is to earn advertising revenue and commissions from loans you get through the site. Although the site positions itself as a trusted adviser, it is motivated to sign you up for new loans.

Use Credit Karma to monitor your score—not to get advice on whether you should take on new debt.

Credit Karma FAQs

Is Credit Karma Really Free?

Yes. Credit Karma will not charge you any fees.  You can apply for loans through the site, and the company will collect a fee if you do.

Is It Safe to Use Credit Karma?

Yes. Credit Karma uses 128-bit encryption, which is considered nearly impossible to crack, to protect its data transmission. It also vows not to sell your information to third parties.

Does Credit Karma Hurt Your Credit?

No. When you access your own information on Credit Karma, it counts as a “soft” inquiry that isn’t reported to the credit bureaus. A “hard” inquiry, such as a lender’s credit check when you apply for a loan, is reported.

How Many Points Off Is Credit Karma?

The only possible answer is, a few if any. Your credit score can vary every time it is calculated depending on whether the VantageScore or FICO model is used, or another scoring model, and even on which version of a model is used. The important thing is, the number should be in the same slice of the pie chart that ranks a consumer as “bad,” “fair,” “good,” “very good,” or “exceptional.” (Even the words on the pie chart can vary slightly.)

Why Is My Credit Karma Score Different From My FICO Score?

VantageScore and FICO are the two big rivals in the credit rating business. Credit Karma uses VantageScore. Their models differ slightly in the weight they place on various factors in your spending and borrowing history.

The Bottom Line

Millions of people use Credit Karma to track their credit scores and credit reports. The site delivers what it promises, for free. For consumers who want or need to track their credit status frequently, it provides a valuable service. Those who just want to check their score occasionally have other options.

Credit Karma can also help you research loan products, but don’t forget this is their bread-and-butter. Its advertisers are eager to lend you money, and that may not be the best thing for your credit score.