You may have heard of Credit Karma, the free credit monitoring and credit repair helper site. You also may have heard it was a scam. Well, it can be all of those things, depending on how you use it. Used right, Credit Karma can be a free, yet valuable tool in keeping track of your financial health.
Why you should use Credit Karma
Credit Karma is a good tool for checking your credit report entries. Notice I did not say “credit score”. Credit Karma is not a good site to check your credit score before you make a purchase. Their scoring system is pretty garbage, and can vary wildly from what a lender will use.
What Credit Karma is good for is regular checking of your credit file for free. With their free account, you can monitor your credit report from two reporting agencies (Equifax and TransUnion). As a member, you have access to your full TransUnion and Equifax credit reports, updated weekly, including highlights showing items that have changed. Use this feature to ensure your credit reports stay error free and watch for payment reporting errors, any strange accounts, unexpected balance increases or credit inquiries to head off credit fraud at the start.
A free Credit Karma membership allows you to monitor your credit report closely without signing up for a fee-based credit monitoring service, or one of those monitoring services that start off free and then stealthily opt you in to their paid service.
Keeping a clean credit report is one way you can increase your credit score, and a high credit score can save money – definitely a frugal living move.
Features on Credit Karma you should not use
Credit Karma prominently features its credit scoring feature. Don’t pay attention to that. Credit Karma bases its scores on VantageScore. VantageScore is not the same as your FICO score, the score used by most lenders. Your FICO score and your VantageScore may vary as much as 50 points, that could be the difference between an acceptable score and a poor score.
The problem with the VantageScore isn’t just the confusion it causes, it’s that Credit Karma is filled with advertising for car loans, credit cards and personal loans that seem to be based on the faux VantageScore. Those ads promise “excellent approval chances”! When your approval changes may not in fact be “excellent” based on your FICO score. So applying for one of these advertised deals may end in disappointment and an additional inquiry on your report for nothing.
In short, view all of those “offers” on Credit Karma as nothing more than advertisements and don’t click them.