Credit score is one of the most critical aspects of your financial life that you should always take time to review. It affects your chances of getting loans, mortgage, credit cards, jobs, and even houses. Of course, everyone would like to track their scores, but they are afraid that when they look at a score, it will somehow worsen. Often it revolves around Credit Karma – the free credit score and reporting service. But does using Credit Karma really help to reduce your credit?
What is credit score and how does it work?
Before we delve into how Credit Karma has shaken things up, it is essential to know what a credit score entails. Credit score is a numerical value ranging from 300 to 850 that shows your ‘creditworthiness’, which means it tells lenders how repayment-worthy you are.
Credit scores are derived from data in your credit reports from the three major credit reporting agencies: Equifax, Experian, and TransUnion. Five main factors determine your score: your payment history, credit card usage, credit length, types of credit, and newly applied credit. Good scores are considered to be 670 and above. The scores that are regarded as excellent are between 740 and 850. This shows that better loan rates and approvals correspond to higher scores.
Why Monitor Your Credit Score?
Thus, the ability to check their credit score is also beneficial since it assists a person in assessing their credit status. The advantages of monitoring your score monthly or yearly are that you can track issues and solve problems before they escalate. Managing this score allows a person to retain his/her credit worthiness for future borrowings and credit facilities.
Other services, such as Credit Karma, also allow you to see your full credit reports. Since you are unable to control information you cannot see, going through your reports enables you to rectify wrong information and also protect your identity from being stolen.
Does Checking Your Credit Score Degrade It?
Another myth that people have is that when they check their credit score it drops. However, the reality is that you cannot actually keep an eye on your score to make an impact on it. Credit inquiries and other actions indeed affect the score, but observing your credit score does not affect the score.
There is no limitation on the number of times you can check your score, therefore you can do it as often as you wish. Indeed, regular checks are useful to track average variation and monitor credit standing in general.
How Do You Use Credit Karma?
Credit Karma offers free credit monitoring, and it shares with its users VantageScore credit scores from Equifax and TransUnion. VantageScores are also based on a 300 to 850 range, like FICO scores, which are the most widely used scores by lenders. Using Credit Karma to check Vantage Score does not harm your FICO score.
When one selects Credit Karma account, they fill in their basic details such as name, date of birth, residence, and Social Security number. Credit Karma employs this to pull your Equifax and TransUnion credit reports and determine your VantageScores based on your data.
Credit Karma then updates your scores each month when new reports are prepared. When you sign up with Credit Karma, you authorize Credit Karma to continue to monitor your Equifax and TransUnion credit reports.
For your information, does Credit Karma offer FICO scores?
VantageScore and FICO score, for example, are very similar, although based on different reporting bureau data and with different calculations. Thus, the score reported to the credit bureau may be slightly different from the one on Credit Karma and other providers.
Credit Karma is pulling your credit data to show you VantageScores, not FICO scores. If you need to know FICO score, you would have to buy it from myFICO or from a bank that offers FICO scores monitoring. However, using Credit Karma to monitor your VantageScore does not hurt your FICO score in any way.
The only exception I can take into consideration is Credit Karma which offers FICO score in cooperation with TransUnion. When you turn on this, Credit Karma conducts a ‘soft pull’ on your credit report from TransUnion to obtain your FICO score. Soft inquiries do not affect your score as do hard credit checks from loan applications.
Does Credit Karma Hurt Your Credit Score: The Truth About Applying for Credit Karma
More to the point, having an account with Credit Karma does not necessarily mean that your credit score will be reduced. As noted earlier, Credit Karma simply gathers data from your Equifax and TransUnion credit reports as explained above. This does not involve any credit check on the client.
However, signing up for Credit Karma credit monitoring or loan/card offers will trigger soft or hard inquiries that are detrimental to scores for a short period. For example, consider accepting the card and loan offers recommended specifically for you on Credit Karma, which involves soft credit checks. And getting credit for those products entails conduct hard inquiries. However, these are additional services which are not obligatory and are not a part of the fundamental Credit Karma services.
The Impact of Credit Monitoring on Your Reports and Scores
In fact, Credit Karma simply takes your current credit information and then uses it to generate VantageScores as well as overall reporting. Therefore, it is safe to say that doing credit check on a daily, weekly or even monthly basis will not in any way affect your credit rating. In fact, monitoring entails that you detect any problems as they are before they worsen.
However, any feature of Credit Karma that triggers a new credit inquiry will slightly decrease your score for a while. Therefore, if you apply for loans or cards through Credit Karma, you will experience short-term effects similar to any other application. So, please, do not wrap credit monitoring with application-based check and the consequences of scores into a one basket. Fortunately, using Credit Karma in its basic form does not have any impact on your credit rating.
To summarize, Credit Karma does not directly affect the credit score of the users. The service is an option that enables the consumers to run absolutely free of charge and with no credit impact checks on the VantageScores. It is only advisable to be cautious with Credit Karma’s additional services that involve credit checks which may negatively impact scores for some time. Lastly, competent monitoring is beneficial, not detrimental, to your credit score.
