My wife and I bought a home a few months ago and I was curious about how buying a home affected our credit score. In the course of researching my score, I was looking for a way to get a free copy of my credit score, but I didn’t want to sign up for a free trial service. There are a couple companies around right now which offer free credit scores and don’t require a credit card (many free trials require a credit card and they automatically enroll you in their credit monitoring service which charges a monthly fee if you don’t opt-out before the free trial ends).
The company I used is Credit Karma, which offers a free credit score with no credit card information. I’ll give an overview of their service, a few places where they shine, and cover a couple areas where I think they can improve. Overall, though, I believe this is a great service for people who are interested in learning more about their credit scores, and the best part – Credit Karma is always free.
Credit Karma Review – Free Credit Score Online
Opening a Credit Karma account. The account opening process is very simple and only takes a few minutes. You will need to 1) create an account (name, e-mail address, and password), 2) enter your name, address, and last 4 of your SSN, and 3) confirm your identity by answering questions about your current or past loans. The entire process takes about 3-5 minutes.
Once you sign up for an account you have instant access to your credit score, Credit Karma Credit Report Card, and other information.
About the credit score Credit Karma uses. There are several common misconceptions about credit scores, namely that there is a “best credit score” or there is only one credit score. The truth is that there are hundreds of types of credit scores. Each credit scoring system is slightly different (there are actually hundreds if not thousands of unique scoring systems, depending on the credit reporting agency, the type of loan and the information the lender wants to see – for example there is a mortgage risk credit score).
While not all credit scores are identical, many of them use similar methodologies. If you are only concerned with a ball park figure for personal use, and not the exact number a lender will use, then pretty much any credit score from a major credit bureau should be good enough for your needs.
Credit Karma uses the TransRisk Credit Score by TransUnion. The standard Credit Score used by Credit Karma is the TransRisk New Account Score provided by TransUnion. This is a proprietary credit scoring system provided by TransUnion, which is one of the three major credit bureaus. The score is based only on the information in the TransUnion credit report. It’s important to know which credit score is being used – since this score is only based on the information from one credit bureau, it is important to ensure you check your credit report to make sure the information they are using is accurate. (Each of the three major bureaus maintains a separate credit profile, which you can receive a copy of free once per year from AnnualCreditReport.com).
Credit Karma Credit Report Card. Credit Karma offers users a Credit Report Card, which rates areas of their credit much like a report card you might have received when you were in school. The areas covered in the Credit Report Card include:
- Open Credit Card Utilization
- Percent of On-Time Payments
- Average Age of Open Credit Lines
- Total Accounts
- Hard Credit Inquiries
- Derogatory Remarks
- Total Debt
- Debt to Income Ratio
My TransRisk Credit Score from Credit Karma and TransUnion showed the opportunity for improvement in Average Age of Open Credit Lines and Total Accounts. My average age of credit isn’t very old, coming in at only 3 years 1 month. This is partly my fault because a few years ago I closed my oldest credit card, which at that point was going on 8 years old. This was before I was reading and writing about personal finance on a regular basis and I didn’t realize that closing a credit card can affect your credit score.
Since then I have also opened a few other cash back credit cards and more recently, I purchased a home (4 months ago). These new accounts have dragged down my average age of credit and changed my overall credit profile.
I received a “C” on my credit report card for the total number of accounts I have, which is 11. I thought that sounded high, and it turns out it is – kind of. Credit Karma reports the total number of accounts you have open and closed, and gives you a score based on that. My assumption was that more lines of credit equaled a greater risk since you have access to more debt at your fingertips. It turns out some credit issuers don’t see it that way. According to the Credit Report Card:
Total accounts is another measure of your creditworthiness. Consumers with more credit accounts generally have better credit scores because it means more lenders are willing to grant credit. This metric represents the total number of accounts listed on your credit report. A breadth of different account types is indicative of good credit.
Unfortunately, the Credit Report Card doesn’t show which accounts I currently have on my report (or it wasn’t immediately evident how I could find this information without going to AnnualCreditReport.com to download a free copy of my credit report). I will need to verify these accounts to ensure accuracy.
It also makes me consider opening a new rewards credit card, since there are a few on the market right now which offer great cash back and other rewards, along with special sign up bonuses. (My family and I are planning a trip for Christmas, so I am thinking about getting the Marriott Rewards® Credit Card which currently offers up to 6 free nights as a sign up bonus. Not a bad deal!).
Other Credit Karma services:
In addition to the Score Center and Credit Report Card, Credit Karma offers a few more tools to help you understand and improve your credit score: Credit Compare, Credit Simulator, and Credit Monitoring.
- Credit Compare is just as it sounds – it shows where your credit score and profile rank among several criteria, including similar Credit Karma profiles, in your state, on a national level, for your age, and more. This information in and of itself is more for a baseline than anything, as it doesn’t give you anything actionable to do. But it can be good o get an idea of how you are doing compared to your peers.
- Credit Simulator is one of the more interesting tools on Credit Karma. The Credit Simulator takes user inputs and shows how they could hypothetically affect your credit score. According to Credit Karma, they take over 200 factors into consideration when they simulate your credit score. And remember how I mentioned I was thinking about opening another credit card? Well, I decided to add another credit card with a $10,000 limit to my credit profile to see how it would affect my credit score. The result was the opposite of what I expected. Even though I would increasing my credit limit and decreasing my average age of credit, the Credit Karma Credit Simulator predicted my credit score would increase!
- Credit Monitoring. Credit Karma is rolling out a Credit Monitoring service on a limited basis. The current offer is only open to the first 12,500 people as of this writing. It is possible they will open this feature to more people in the future. Here is more info about free credit monitoring form Credit Karma.
Questions which might interest potential Credit Karma customers:
- How accurate is the credit score? The credit score is as accurate as the information in your credit report. Since this credit score is based on the TransRisk Credit Score from TransUnion, it is only as accurate as the information in your TransUnion credit report. Each of the 3 major credit bureaus may have slightly different information on file for you, so it is a good idea to check your credit report from each of the credit bureaus at least once per year (you can do this for free from AnnualCreditReport.com).
- How can Credit Karma offer free credit scores? Credit Karma is following a similar business model as Mint.com – offer consumers a valuable product for free, then find a way to make money after the fact. Like Mint, Credit Karma makes money by recommending products and services which might benefit you. For example, they may offer you a better credit card than the one you are using, or recommend you refinance your home loan to save money. These products can benefit you, and they have already done the research, making it easy to compare products and services. While there are ads on their site, I don’t find them to be intrusive, nor do they push them on you
- How safe is it? Credit Karma uses the same security procedures as major banks and other financial institutions, so I would say it’s basically the same as online banking. The website will also automatically log you off after just a few minutes of inactivity (which happened to me several times while I was writing this review).
Bottom line: I can’t find much fault with Credit Karma. The only thing I wanted to see was a list of the accounts they used for the credit scoring and credit report card. I wasn’t able to find a list, but I can get one by obtaining a free copy of my TransUnion credit report from AnnualCreditReport.com. Other than that, I believe this is a great service, which almost everyone should consider. Even if you aren’t planning on making any purchases on credit in the near future, it’s a good idea to periodically monitor your credit score for changes – this is one of the easiest ways to catch identity theft.
You can sign up for a free Credit Karma account here: Join Credit Karma.