Q: I’m trying to increase my credit score ahead of applying for a large loan, so I’m considering signing up for Credit Karma to track my score. How accurate are the credit scores it shares? Is there anything I need to be aware of before signing up for this service?
A: Credit Karma is a legitimate company; however, for a variety of reasons, its scores may vary greatly from the number your lender will share with you when it checks your credit. We have answers to all your questions about Credit Karma.
What is Credit Karma?
Credit Karma is an online credit service that operates under the principle that everyone is entitled to a free and honest credit score. To that end, the site allows you to check your credit whenever you’d like without paying any fees-a privilege that can cost you about $20 a month from its competitors. You’ll need to sign up for the service and share some sensitive information, like your Social Security number and your financial goals, but you won’t be asked for any credit card numbers or account information.
Scores are updated once a week, and the company only performs a “soft inquiry” on your credit to get the necessary information.This means your score is never impacted by it checking your credit on your behalf. Credit Karma also offers lots of credit advice, customizable loan calculators and reviews on financial products of all kinds.
Credit Karma earns its profit through targeted ads. As you learn your way around the site and start to frequent it more often, you’ll see ads that are geared toward your specific financial situation. For example, if your credit is excellent and you’re looking for a home loan, you’ll probably find loads of ads from mortgage companies. While this may seem like a breach of privacy, it’s no different than the way much larger online platforms you likely use, including Google and Facebook, earn a profit.
How does Credit Karma calculate my score?
The online credit company uses information from two of the three major credit reporting agencies, TransUnion and Equifax, to give you a VantageScore 3.0. While this type of credit score is gaining popularity among lenders, you may not recognize it-and for good reason. The FICO scoring model is by far the most widely used credit score among financial institutions and lenders across the country, with 90% of lenders using this score to net potential borrowers.
The atypical scoring model used by Credit Karma, coupled with the absence of information from Experian, the third of the three major credit reporting agencies, tends to make Credit Karma scores differ from scores pulled by other companies and financial institutions. The credit service is usually within range and a good indicator of your overall credit wellness. You can also get a report with a thin credit history through this model, which is super-helpful for those seeking to build their credit from nothing.
How do other lenders calculate my score?
Most financial institutions use a FICO scoring model to measure consumers’ credit scores. As mentioned, this number will likely be lower than the score you see on Credit Karma, but will fall within the same general range.
It’s also important to note that, each time you apply for a specific kind of loan with an individualized lender, it will likely also use its own customized formula. For example, if you were applying for a mortgage with a home loan company, it would probably use a score that is specifically developed for mortgage loans. Similarly, if you were to apply for a car loan from an auto lender, it will use its own score designed to predict the likelihood of you defaulting on an auto loan. This can result in an even lower credit score from these lenders.
Is there any other way to get my credit score?
If you’re looking for a more relevant credit score, you have several options. You can ask a potential lender to pull your credit, though this might cost you both in fees and in a knock to your credit for the hard inquiry. You can order your free credit report with information from all three credit bureaus once a year, at AnnualCreditReport.com. Lastly, for more frequent monitoring, you can sign up for access to your FICO score and 3-bureau credit report on Experian.com, where packages start at $19.99 a month. There are other similar services out there, but most are not legitimate or are grossly overpriced.
How does Diamond Valley decide if I’m eligible for a loan?
We use the FICO 98model to calculate your credit score when you apply for a large loan. While this number will likely differ from your Credit Karma score, it gives us a broader picture of your credit as it includes information pulled from all three credit bureaus. We’ll also review your full financial history and trajectory to determine if you are eligible for the loan.
Here at Diamond Valley, our goal is to help you achieve and maintain financial wellness. Consequently, we are far more likely to approve a loan for one of our members than a random lender who doesn’t know the first thing about you or your financial history.
If you’re trying to increase your credit score before applying for a large loan, we can help! Stop by Diamond Valley today to speak to a loan representative about steps you can take to improve your credit.
If you’re ready to take out that loan, make Diamond Valley your first stop! Our stress-free application process, low interest rates and reasonable terms make us the best choice for your next large loan. We’ll help turn your dream home, car or business into a reality.
As an enthusiast with a comprehensive understanding of credit scoring systems and financial services, I can provide you with valuable insights into the article's concepts regarding Credit Karma and credit scores. My expertise is rooted in a thorough knowledge of the credit industry, scoring models, and the factors that influence creditworthiness.
Credit Karma Overview: Credit Karma is a legitimate online credit service that provides users with free access to their credit scores. It operates on the principle of offering a transparent and cost-free way for individuals to monitor their credit health. Users can check their credit scores without incurring any fees, a feature that sets it apart from competitors charging around $20 per month.
Score Calculation by Credit Karma: Credit Karma calculates credit scores using the VantageScore 3.0 model, utilizing data from TransUnion and Equifax, two of the major credit reporting agencies. However, it's crucial to note that this scoring model may differ from the widely used FICO scoring model, which is employed by 90% of lenders.
Accuracy and Variability of Credit Karma Scores: While Credit Karma provides a good indicator of overall credit wellness, its scores may vary from those obtained by lenders who use the FICO scoring model. The absence of data from Experian, the third major credit reporting agency, contributes to the divergence in scores.
How Other Lenders Calculate Scores: Most financial institutions, including Diamond Valley, use the FICO scoring model. However, individual lenders may apply customized scoring formulas based on the type of loan being sought. For example, mortgage lenders and auto lenders may use specialized scoring models tailored to their specific risk assessments.
Alternative Ways to Obtain Credit Scores: If you seek a more relevant credit score, alternatives include asking a potential lender to pull your credit, ordering a free credit report annually from AnnualCreditReport.com, or subscribing to services like Experian.com for more frequent monitoring. These alternatives provide different perspectives on your creditworthiness.
Diamond Valley's Loan Approval Process: Diamond Valley uses the FICO 98 model to calculate credit scores when assessing eligibility for large loans. The institution considers a broader picture by reviewing information from all three major credit bureaus, alongside a comprehensive analysis of your financial history and trajectory.
In conclusion, while Credit Karma offers a valuable service for free credit score monitoring, it's essential to understand the nuances of scoring models and the potential variations in scores across different lenders. Diamond Valley, as mentioned in the article, emphasizes a holistic approach to loan approval, taking into account various factors beyond just the credit score.
