Friends, this week I am going to chat a bit about Credit Karma. The fantastic site that allows you to review your credit, keep tabs on it and also dispute tradelines. All for free!
The only thing is… when a site is free, you are the product. Just ask Facebook, Twitter, or any other online media service that uses your behavior to learn how best to market to you and others like you.
That being said, Credit Karma does serve a purpose as long as you keep it in context. It is a great way to find out what credit accounts you have reporting on two of the three bureaus, as Experian does not participate, only TransUnion and Equifax does. However, it’s not the best way to challenge or dispute accounts. More on that here. Nor is it going to report to you useful credit scores. Credit Karma uses a Vantage 3 scoring model which is not a FICO scoring model. FICO is used by most, if not all lenders. As a matter of fact, in all the years we’ve been in this business, I have yet to hear of one lender that uses Vantage 3; despite the bureaus marketing Vantage 3 as being true FICO scores. For which they were fined…
I received an alert a few days ago that I saved, specifically to share with you all. Take a look at this. Basically, it’s an alert stating that my score has changed, and that I paid off an account:
However, when I review my score, low and behold, they actually went down. Despite my reducing my revolving utilization, in short reducing my risk as a future borrow, yes… my score went down:
14 points folks… Now, there are circumstances where if you pay off all of your revolving debt, we do see a small decrease in scores, which is why it’s typically good to carry a small balance, which I was on other cards.
Also, take a look at the my recommendations up top. See that ‘1’?? That is a suggestion from my friends at Credit Karma suggesting I get another credit card to improve my score…
I currently have 4 revolving accounts, all well over 10 years old. If I were to get another card, I would not only get an inquiry, which would drop my score, but also shorten my average history of accounts, which would also lower my score. Also, see where it says ‘Suggested for your credit’ just below my credit scores?? It literally says, ‘We suggest offers based on your credit profile, approval odds, and (get this) “money we make from our partners…”‘ how does that make a feel?? They’re suggesting creditor for you, based on part the money they make from their advertiser and referral partners…
Point is folks, Credit Karma is good if you use it to review your credit, be made aware of unauthorized inquiries, which is the typically the first indicator of fraud and that’s about it. If you are relying on it to help you improve your credit, or dispute accounts, be careful. And when you get an alert that your score dropped after paying down a credit card, remind yourself. The scoring model is bogus. So much so, the government fined all three bureaus for promoting their scoring model as true scores. Which was and is a lie. There really is no such thing as ‘true scores’… as it depends on what type of credit you are asking for and what FICO model that creditor uses.
Just be careful out there. Take the scores on Credit Karma with a grain of salt. Am I an 800?? I don’t know.. maybe. Maybe not. But I am certainly not going to open up another card, just because a website tells me to. Knowing full well, they get benefits by referring people to other sites.
Any questions?? Call us.
Scoreology – The Science of Credit Repair