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.

Summary

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.

If you still have more questions, follow this link to Credit Karma’s FAQ page or email them.

(This post is featured in the Carnival of Personal Finance #219 – Little League Edition)

A few years ago, I was sitting at my desk at work when I received an email alert from Equifax. Concerned, I opened the email and found that a collections agency had just popped up on my credit report. My first thought was, “Who is trying to collect from me?” My second thought was, “There goes my credit score.” Since I hadn’t been contacted by the collections agency and I was unaware of any outstanding debts, I was left completely confused and wondering what to do.

An illegitimate collections account

After checking my report, I found the name and contact information for the agency. Since my first response to pretty much anything is to Google it, I immediately searched for NCO/Fin 99 (the name of the agency). The search yielded a lengthy list of complaints against the agency. Apparently, they had many reports of fraud and predatory business practices. Not wanting to be a victim of fraud, I spent time researching how to resolve the issue and remove the account from my credit report (which should be a high priority).

After following the advice that I received online, fighting the claim, and waiting several months, the collections agency decided not to pursue me and removed the account from my credit report. To this day, I have been unable to determine what debt it was that I allegedly had not paid.

Steps to resolving a collection account

I have outline below the steps that I followed to have the delinquent account removed from my credit report. If a collections account happens to surprise you one sunny afternoon, this same process should help guide you through remediation.

1. Obtain as much information about the company and debt as possible. For example, you will need at least the name and mailing address of the company, the amount of the debt, and the account number. Your credit report should contain all of this information. Other useful information is the original creditor (helps you determine if the account is legitimate).
2. Write a letter to the collections agency requesting verification of the debt and that they cease attempting to collect the debt until verification is provided. I have placed below an example letter that you can use. Just fill in the blanks, sign, and send it off via certified mail and return receipt (you want to have a record that you have contacted them).
3. At this point, the agency will either stop pursuing you and remove the account from your credit report or send you verification of the debt which should include additional information.
4. If you receive verification of the debt, then the next step is to negotiate settlement and the removal of the account from your credit report. You do not want the account to linger on your report and damage your credit score. Contact the agency via phone or certified mail telling them that you are willing to settle the debt if they remove the instance from your credit report (this request is known as “paying for deletion”). Once they agree, try to get the agreement in writing.
5. Next, pay the debt. I am not advocating or telling anyone to avoid paying debts that are rightfully yours. If you incurred the debt, then take responsibility and pay it. Having said that, try to negotiate with the collections agency to reduce or remove any late fees or interest penalties so you only owe the principal amount.
6. Monitor your credit report to see if the account is removed. If you find that the account has not been removed, then dispute it directly with the credit bureau letting them know that the situation was resolved and the collections agency had agreed to remove the account.

A legitimate collections account

Recently, I received another notification that I had a collections account on my credit report. Knowing the hassle I had had several years ago, I expected more of the same. After sending the validation or verification letter, I received notice that I did indeed have a past due debt. Three years earlier, my wife (fiancé at the time) had illegally parked my car and received a parking ticket. We were married a short time later and forgot about the ticket in all of the excitement. We now owed over $100 for a $30 ticket. My wife called the agency, explained the situation, and they reduced the amount to $60. They also agreed to remove the account from my credit report. We happily paid, the account was removed, and my credit report remains clean of any blemishes today.

For more information on how your credit score is calculated and how you can increase or maintain it, read “How I had an 800 FICO score at age 24“.

Example Validation or Verification Letter

[Date]

[Company Name]
[Street Address]
[City, State Zip Code]

Re: Account Number: [Account Number]
Amount of Claimed Debt: $[Amount]

Greetings:

I am writing to give you notice under the Fair Debt Collection Practices Act that I dispute the above-referenced debt and request that you verify it. I also request that you provide me with the name and address of the original creditor and copies of all documents which pertain to the above-referenced account and the alleged debt.

This letter shall also serve as a reminder that you must cease collection of the debt, or any disputed portion thereof, until you obtain verification of the debt and the name and address of the original creditor and mail that information to me.

Thank you for your prompt attention to this matter.

Sincerely,

[Your Name and Sign Above]