Credit Karma is among the companies most closely associated with free credit reports, but it doesn’t create its own credit score for you. Instead of developing its own score, Credit Karma reports your score based on other sources’ data. This structure can potentially introduce inaccuracies in your score, though these deviations are rarely severe. Learn more about them below – and what to do if they are seriously off-base.
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What Is Credit Karma?
Credit Karma is a fintech app through which you can access your credit score and credit reports. The company is among the leading “free credit score” financial services – you won’t pay any money to use it. You’ll share your full legal name and Social Security number to get your free credit score.
Credit Karma has offered its services since 2007, when Kenneth Lin, Nichole Mustard, and Ryan Marciano launched it. Currently, Lin is CEO, Mustard is chief revenue officer, and Marciano is CTO. Fintech giant Intuit acquired Credit Karma in 2020.
Other Services Credit Karma Offers
Alongside the credit services for which it’s best known, Credit Karma offers personal loans, auto loans, and home financing. Technically, the company connects you with third-party lenders instead of directly administering loans, but you can indeed apply for a loan through Credit Karma. You can also use Credit Karma to file your taxes, monitor your identity, shop for credit cards, and browse debt relief options.
How Does Credit Karma Make Money?
The “We’re free and always will be” on Credit Karma’s About page might make you wonder how the company could possibly make any money. The answer is simple: Ads and data. As you use Credit Karma, the platform learns your spending habits and mines your spending behavior data. Credit Karma then sells this data to third-party advertisers that present you with targeted ads as you use the app. Many experts say that this data has tremendous value.
Credit Karma’s ads may feel quite disruptive or annoying as you use the app. Additionally, Consumer Reports has found that these ads will often encourage you to spend money on additional financial services. Consumer Reports says that these advertised services, though “personalized recommendations tailored to you…may not be in your financial best interest.”
How Accurate Is the Credit Karma Score?
The Credit Karma score is mostly accurate but may have minor imperfections. Its deviations from what lenders actually see when they view your credit reports stem from how Credit Karma works.
For starters, Credit Karma isn’t a credit bureau. This means that Credit Karma doesn’t obtain your credit data directly from creditors such as banks and lenders. Instead, it obtains your credit data from two of the three major credit bureaus: TransUnion and Equifax. Since these entities do indeed take your credit data directly from creditors, their information is highly accurate. As such, your Credit Karma score should be largely accurate.
Any potential inaccuracies in your Credit Karma score stem from the credit scoring model it uses. Credit Karma uses VantageScore 3.0, whereas and lenders view the FICO model as the industry standard. Some lenders might look only at your FICO score and never your VantageScore number. Since the two scores may differ somewhat, lenders may see a different number than what CreditKarma tells you.
Why Might My Credit Karma Score Be Off?
Your Credit Karma score is an overall good starting point for assessing your credit score, but it’s rarely perfect. Its deviations from what creditors will see typically have four possible explanations. These issues include:
1. Incorrect credit history
As mentioned earlier, there are three major credit bureaus, two of which compile your Credit Karma score. Each of these institutions introduces the potential for inaccurate information to appear in your credit history. Plus, even if two of the three bureaus have your credit file correct, errors in the third could sink your credit score.
Credit Karma is aware of this issue and offers its Direct Dispute™ platform as a solution. Through this platform, you can quickly flag any errors you spot in your reports. The credit bureau in question should then rectify the error if it’s indeed inaccurate. You can flag and resolve outdated information in a similar manner.
2. Differences in credit bureau information
Certain creditors will only report your information to one or two of the three major credit bureaus. This data-reporting approach can lead to one bureau’s report lacking beneficial information shown on another, or displaying an unpaid bill that’s actually been paid. Furthermore, each credit bureau might update your reports at different times. The end result of all these informational differences can be an inaccurate Credit Karma score.
3. Choice of credit scoring model
Though the variance in FICO and VantageScore numbers is typically small, even tiny gaps are still inaccuracies. This variance may persist even if the algorithms underlying both scores use the exact same data inputs. That’s because each model emphasizes different parts of your payment history.
There’s no way to know exactly how each score is calculated, as both FICO and VantageScore use proprietary algorithms. The closest you can get might be each credit scoring model’s infographics detailing what does and doesn’t matter. Both the FICO and VantageScore infographics list several factors comprising your score without showing an exact formula.
Best Alternatives to Credit Karma
Though reliable, Credit Karma might not be a perfect fit for everyone. Other well-regarded free credit report services include those listed below. Some are user-friendlier than others – and others might already be readily accessible to you even if you don’t yet know it.
- Credit Sesame. Like Credit Karma, Credit Sesame offers free VantageScore credit reports. Some users find that Credit Sesame offers better personalized advice for improving your credit score.
- Credit.com. Although Credit.com will eventually charge you for its services, you can use it for an initial free Experian report. You can obtain a concrete action plan for improving your score alongside your report.
- WalletHub. With WalletHub, you’ll get a free VantageScore credit score alongside balances for all your credit accounts. This comprehensive overview comes with letter grades for your performance in each factor determining your score.
- Experian. Experian offers its own free FICO score service. The obvious advantage of this Credit Karma alternative is that you’ll get industry-standard information directly from a major credit bureau.
- TransUnion. At the outset of the COVID-19 pandemic, TransUnion made its free annual credit reports available weekly. This change has yet to be reversed.
- Equifax. If you create an account with Equifax, you can pull up a free credit report at least annually.
- Your credit card app or online portal. Many credit cards will present you with your credit score for free when you log into your dashboard. Sometimes, you’ll need an extra click from your dashboard to get there, but this service is generally free. And since you’re accessing it from a portal you’re likely already logging into regularly, it may be your best Credit Karma alternative.
What to Do Once You Know Your Credit Score
If your credit score is where you want it to be, that’s obviously ideal. But if it isn’t quite reaching your goals, you can take several steps to establish your credit. Get started with our guide to building and growing your credit. As you follow this advice, you might start seeing exactly the number you want when you pull up your free credit reports.
