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Using Credit Karma to Monitor Your Credit: How It Works and Why You Need It

September 26th, 2017 · No Comments · Credit Reports, Credit Scores

by Staff

Using Credit Karma to Monitor Your Credit: How It Works and Why You Need ItHow does Credit Karma offer its credit monitoring services for free? Which credit bureaus do they pull from? Which scores do they use and are they accurate? Get answers to these and other questions about Credit Karma, one of the more popular services you can use to monitor your credit, during the credit repair process and beyond.

How Credit Karma works

Credit Karma is one of many free credit monitoring services. It pulls information from the credit bureaus and provides you with your credit reports and scores on a regular, year-round basis. This makes it a great supplement to the free reports you only get once a year through AnnualCreditReport.com.

Which bureaus Credit Karma uses

Unlike other free credit monitoring sites that only provide you with information from one credit bureau, Credit Karma provides you with information from two – TransUnion and Equifax. This unique feature alone makes Credit Karma a valuable credit monitoring tool. (Obviously, you want to monitor your Experian report and score as well, which you can do for free through Credit.com; it’s also free.)

Which score Credit Karma uses

All credit scores are based on information in credit reports – three-digit numbers generated by algorithms used by the credit bureaus. In the case of Credit Karma, the credit scores you see will be based on the information in your TransUnion and Equifax reports.

One important distinction to make about Credit Karma scores is that they are VantageScores, not FICO Scores. Users who don’t understand this often assume the scores Credit Karma shows them are inaccurate because they don’t match up with the FICO Scores they see from other sources.

While FICO Scores are far more widely used by lenders than VantageScores, this doesn’t mean the scores you see through Credit Karma are any less valuable in terms of credit monitoring. They will not only give you a good idea of your credit health at any given point, but can also show you how your credit repair efforts are impacting your score over time.

What Credit Karma shows

Once you’re signed into your Credit Karma account, there are four places where you will find information about your credit reports and scores, as well as credit offers tailored to those reports and scores.

Dashboard

This is a very general credit overview, showing:

  • Your TransUnion VantageScore
  • Your Equifax VantageScore
  • The last time these scores were updated
  • Option to see score details

You’ll also see a suggested credit offer based on your current credit score.

Score Details

In the top right-hand corner of the page, you will see the option to choose between score details for TransUnion or Equifax.

For each, you will see:

  • Your VantageScore
  • Graph showing your VantageScore over previous months
  • Credit factors*
    • Credit card use (i.e., credit utilization ratio)
    • Payment history showing the percentage you have paid on time
    • Number of derogatory marks (e.g., collections, judgments, tax liens, bankruptcies)
    • Credit age representing average length of time your current accounts have been open
    • Total accounts (both open and closed)
    • Number of hard inquiries

*You will have the option of clicking through to view details of these credit factors where you can see specific accounts, derogatory marks, and hard inquiries, among other things.

  • Credit report details with an option to print your report

You’ll also see a suggested credit offer based on your current credit score.

My Recommendations

This is where you will see targeted credit offers recommended for you based on your current credit score. These recommendations will include:

  • Name of the credit issuer
  • Your approval odds
  • Details, rates, and fees
  • Option to apply now

Just keep two things in mind about these offers. One, just because a credit offer is recommended to you that doesn’t mean you automatically qualify. And two, there may be better offers out there that are not reflected on the Credit Karma site. So before you apply, pay attention to the approval odds and shop around first.

Accounts

In the top right-hand corner of the page, you will see the option to choose between score details for TransUnion or Equifax.

For each, you will see:

  • Number of accounts
  • Total open balances
  • Credit cards balance
  • Real estate balance
  • Auto loans balance
  • Student loans balance
  • Other loans balance
  • Collections balance

You will also see a list of specific accounts, which includes the last reported date, the balance, and the account status.

How often it updates

Credit Karma updates every 7 days. This means that there will always be a week’s worth of updates that may not be reflected in the reports and scores you see there. (For daily updates, use WalletHub; it’s also free. It only pulls from TransUnion, but it will give you the best reflection of where you credit stands in real time.)

Why Credit Karma is free

Like many other credit monitoring services, Credit Karma is free to you because of its partnerships with companies offering financial products on its site. If you apply and are approved for a credit card or loan through Credit Karma’s recommendations, they receive a commission.

As stated on Credit Karma’s website, “These offers may include refinancing options if you look like you might be overpaying for a loan, or credit cards that could help you optimize your savings and earnings.”

How to sign up

In order for anyone to access your credit reports and scores, they must have permissible purpose. You grant this to creditors every time you apply for a loan. The same is true if you apply for insurance or a cell phone or any other type of service that does a credit check first. Permissible purpose also applies to credit monitoring services like Credit Karma.

To sign up for Credit Karma, you will need to create an account and provide them with personal information to verify your identity. With this information, they can gain access your TransUnion and Equifax credit files.

Note, in the wake of the Equifax hack, experts and regulators advise that you place a credit freeze on your credit reports. Just be sure to sign up for credit monitoring first – whether it’s Credit Karma or not – as they will not be able to access your files once the freeze is in place. This is true of any other credit monitoring site, as well as creditors, lenders, and the like. If you’ve already placed the freeze, but still need to initiate credit monitoring, you will need to use the PIN provided by the bureau(s) to lift the freeze temporarily. (The same is true anytime you need to have your credit accessed when applying for a product or service that requires a credit check.)

Credit Karma credit offers

One of many ways to improve your credit score is to increase your available credit. While you do not want to take on debt just for that reason alone, a new credit card, for example, that you pay off every month, could help boost your score.

As already mentioned, you will see credit offers appear throughout the Credit Karma website. However, you can also search these offers by loan type.

For credit cards, you can search those specific to:

  • Balance transfers
  • Low interest
  • Rewards
  • Cash back
  • Airline
  • Student
  • Business

For loans, you can search those specific to:

  • Personal loans
  • Home loans
  • Auto loans
  • Student Loans
  • Business Loans

You can also get quotes on auto insurance rates.

How to navigate credit offers

  • Look at approval odds. The last thing you want to do is apply for credit that you don’t get; you’ll not only be rejected, but a hard inquiry will show up on your credit reports. One hard inquiry won’t knock any more than five points off your score, but if you submit additional applications after the initial rejection, then you’re racking up multiple hard inquiries on your credit reports which doesn’t look good to creditors.
  • Look at details, rates, and fees. Getting approved for credit is a good thing, but just any old credit won’t do. If you’re not careful, you could end up with high interest rates and expensive fees that could have been avoided or, at the least, minimized. You could also end up with credit card rewards that you won’t even use.
  • Look at offers on other sites. While an offer you see on Credit Karma might be a great deal, you might find a better one somewhere else. So before applying, compare the offers you see on Credit Karma to those on other credit (and insurance) comparison sites (like Bankrate, NerdWallet, and WalletHub).

Credit Karma resources

In addition to credit monitoring and credit offers, Credit Karma provides other resources that could help you improve your credit or financial situation.

Credit score simulator

This tool will show you how your credit score could be impacted if you:

  • Get a new loan
  • Get a new credit card
  • Transfer balances to a new card
  • Close your oldest card
  • Have a credit application denied
  • Get a credit limit increase
  • Increase or decrease your balances
  • Let your accounts go past due
  • Go into foreclosure
  • Have your wages garnished
  • Have an account sent to collections

Credit calculators

If you’re not using credit calculators to see how much loan you can afford, you should be. On Credit Karma, you’ll find a:

  • Mortgage refinance calculator
  • Debt repayment calculator
  • Simple loan calculator
  • Amortization calculator

Spending tracker

This tool allows you to connect your bank and credit card accounts to Credit Karma. It will track your:

  • Net cash flow
  • Money spent by category
  • Individual transactions

Credit Karma also has articles, reviews, a community forum, and a blog.

Other free credit monitoring options

AnnualCreditReport.com

By law, you are entitled to see your credit reports for free – through all three credit bureaus – every 12 months. You can order all three reports all at once or you can stagger them throughout the year. To make this request, go to AnnualCreditReport.com. You can do it online, by phone (877-322-8228), or by mail with this form.

Services like Credit Karma

Credit Karma is just one of many free credit monitoring services you can sign up to use for regular, ongoing access to your reports and scores. Others include:

  • Credit.com – Experian credit report and VantageScore
  • WalletHub – TransUnion credit report and VantageScore (updated daily)
  • Credit Sesame – TransUnion credit report and VantageScore
  • Lending Tree – TransUnion credit report and VantageScore
  • myBankrate – TransUnion credit report and VantageScore
  • CreditCards.com – TransUnion credit report and VantageScore
  • Quizzle – TransUnion credit report and VantageScore (updated every 3 months)
  • Experian CreditWorks – Experian credit report (every 30 days)

Credit card companies

Some credit card companies also offer free credit scores. Discover and Capital One offer free credit scores to anyone – FICO through Discover and VantageScore through Capital One – whether you have an account with them or not. Your own credit card company may also provide you with an updated FICO score every month.

Special circumstances

You can see your credit report for free if:

  • You received an adverse action notice
  • You received a risk-based pricing notice
  • A change is made to your credit report due to a dispute
  • You have reason to believe your credit report is inaccurate due to fraud
  • You are unemployed and looking for work
  • You are receiving public welfare assistance
  • Your state offers a free credit report

Learn more about these free (as well as paid) credit monitoring options in our comprehensive post, 22 Ways to Monitor Credit Reports and Scores.

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