I came across Credit Karma about a month ago and decided to sign-up to evaluate the service. Basically, Credit Karma provides you with your credit score and an analysis of your credit report for free. I’m not talking about 30 days for free and then you pay “only $9.99 a month after that.” I’m talking about 100% free – forever. Well, at least while their sponsors continue to pay the bill.
The concept of Credit Karma is almost foreboding. The name itself refers to the fundamental concept of karma – what goes around comes around. Meaning, your actions today will affect your credit score tomorrow. So, can Credit Karma help you create some good karma? I’ve broken down my review into several key questions.
How is it free?
The service is completely free due to advertisers. Companies like Geico, Charles Schwab, and State Farm Insurance pay the bill for your credit score in order to place ads on the site. Meaning, no credit card required. One of the benefits of Credit Karma is that the ads/offers are targeted and voted on. By providing your information, Credit Karma determines which offers are most relevant to you. Further, members are able to vote on whether or not an offer is valuable. One important note is that Credit Karma will never disclose any personal information without your permission. Meaning, advertisers cannot determine who you are unless you sign-up for an offer.
I personally believe that the offers are valuable to consumers for two reasons. First, you have access to valuable credit information for free. Second, you are made aware of financial offers that you may not have otherwise known about.
What services are offered?
Here is a brief highlight of the main services that Credit Karma provides.
- Credit report card – Your credit report card is an analysis of your open credit card utilization, percent on-time payments, average age of open credit lines, total accounts, hard credit inquiries, total debt, and debt to income ratio (for more information on these areas, read this post). For each area, you are given a grade, A through F (I got a “D” for average age of open credit lines). This might bring back nightmares of grade school, but it also gives you a great insight into which areas you need to improve. Think of this page as your action plan.
- Credit score and snapshot – You also receive your credit score from TransUnion, which can be updated as often as you’d like. Credit Karma graphically tracks your score over time to let you know how you are progressing. My score jumped 16 points over the one month period! The credit snapshot is a view of how lenders view your credit score as compared to the national distribution of scores.
- Credit score comparison – This feature is just cool (though it may lead to an increased ego or just crush you). Your score is compared against all other Credit Karma users, just users in your state, users in your age group, and users that use your same email domain (I’m in the 76th percentile as compared to other Gmail users, argh).
- Credit simulator – If you are wondering how different actions will affect your score, Credit Karma provides 14 different attributes on which you can run simulations. So for example, how does adding a new credit card affect my score? Well, I checked and it decreased my score by two. Sorry American Express, no card this Fall. The 14 attributes fall into three general categories: Credit Limits, Payments, and Records.
- News articles, tools, and financial calculators – There is also a feed of news articles related to credit, tools, and a host of financial calculators.
All and all, I found the offerings to be very insightful and worth being served unobtrusive ads.
Does it affect my credit score?
Okay, so I’m very paranoid about doing anything that would affect my credit score unless I need to. So I emailed Credit Karma and asked if checking my credit score through them would affect my score. Here is their response, “No. Credit Karma is making the credit score request on your behalf. Inquires made on your behalf will not be shown to creditors and will not affect your credit score.” Meaning, check back often to see how your score and credit report are doing. You don’t want a mistake to go too long without notice.
I strongly advocate taking good care of your credit score since it has the ability to open and close doors (new home, new car, job, apartment, low interest rates, etc). Credit Karma offers an excellent service at a genuinely free price. Go check it out.
(This post is featured in the Carnival of Personal Finance #219 – Little League Edition)