Today We’are talking about Credit Karma. It’s a kind of tool people use to track their credit. We want to talk about three things:
- What Does Credit Karma do or How it Works?
- Do they do it well and should you use the Credit Karma?
- Is credit Karma Safe?
Now I will be totally honest with you and say “right off the bat”. I do not use Credit Karma. Yes but true. Okay, I am not saying that they are a bad company but in this article, I will explain why I don’t use them and hopefully this article will help you decide whether you should use credit karma or not.
What Does Credit Karma do or How it Works?
So let’s start with this. The Number one thing I want to talk about is How Credit Karma works or What it actually does? Right! 99% of the people that use Credit Karma more than likely use it to track their scores.
As we know credit is complicated, tracking your credit is not as easy as you think, Therefore,
The Entire business model of credit karma relies on giving the credit details to its users.
They will help you monitor your credit scores. They use a TransUnion and Equifax but they will monitor your credit scores and show you where your credit scores stand. And the plus point is that they do it for free like you don’t have to pay any penny for them.
So far, I mean that’s a really cool business model. Everyone should monitor their credit so credit karma is the best place for that. It’s really a wonderful thing to know that you have good credit or it’s a really smart thing to know that if you have bad credit and you need to start working on it in order to get it built up because it has huge financial ramifications on you (The Bad Credit).
So again, they help you monitor your credit and they do it at absolutely no expense to you. Now that’s not to say they don’t make money because they actually do. If you go to their website they say that there’s no cost for you to use the service and how we make money is this:
When you don’t have a credit card at all
Let’s say you don’t have a credit card at all. Then credit Karma may say you that your credit score is round here (some figures) because you have no cash ratio or your cash ratio is zero. You have no revolving trade lines that could potentially help build your score.
Well, Credit Karma suggests you use one of these credit cards (their partners’ products) that can have a significant effect on you (They’re marketing their Partners). They have allied and partnered up with these institutions and they will hopefully help you get a credit card. So if you get a credit card through this company then
They make a commission – that’s how they make money.
You don’t have to pay anything but at the end of the day if you kind of gets a financial service or product with one of their partners – they make a commission that’s how they make money.
Now again it is not a bad thing because it does not cost you anything. But I would also say look at some of the partners that they use a lot of the interest rates that they have or at least what I have seen they got really really high-interest rates but again you don’t have to pay anything to use if you happen to buy a product through one of their partners – Credit karma makes a commission from them, that’s how they make money.
Do they do it well?
Now the second thing I said earlier: do they do it well? is the service that they provide is solving the problem of people for offering a free check of credits. Yes but not exactly the actual problem.
In my opinion, most people use credit karma to track their credit scores that are the reason why you go there right (I am talking to you – a reader). It’s a free service and they track your credit score but in my experience that score that they show you is pretty inaccurate. Yes exactly. Have a look at the below Snap of one of the users of Credit Karma.
But the above data is inaccurate somewhat. Compared it to Fico Credit Score – the provided score from credit karma does not match. A Fico Credit is also a Credit Model – most people use it and believe in this because it provides somewhat accurate stats.
I have done a lot of loans at my credit union and so many times I asked the member ahead of time hey! do you know where your credit stands roughly? but they can only tell me what the rates would be before I submit anything.
They continued, If you tell us that you want a car loan, your score is a 646 and you want to finance it for 47 months we’ll tell you that your interest rate is three point one five percent 3.15%, you don’t have to apply for anything we can tell you what the rates are if you like it, good, if not you don’t have to do anything.
So it really benefits people to know what their credit is before they apply for a loan but when I ask that member do you know where your credit stands? He replied with an inaccurate result.
A Few Calculations:
Credit Karma tends to be pretty off. If you say that your credit score is a 690 then that would give you a two point two percent 2.2% auto loan then you’re feeling good. But what if they’re 30 points off and your score is 660 well now your rate could be four percent 4%, that’s double the rate that I originally quoted you all because you assumed your credit scores were based off credit cards model right and they’re typically inaccurate.
It’s very rare for me to see them be totally “right spot on” when it comes to credit. I’d appreciate it even if they were plus or minus of two or three points. It wouldn’t be a big deal but when you’re off as much as they are it really doesn’t give you any good.
The Entire Business Model of Credit Karma
The Whole Business model they have, doesn’t cost you anything but the Credit Karma will monitor your credit but it is pretty inaccurate.
Why would I want that information so I’m not sure they do what they do well and just because they’re inaccurate I don’t know if I’m really a fan of the institutions they’ve partnered up with.
Is Credit Karma Safe?
So far we have discussed:
- What’s Credit Karma
- How it Works
- How they make money
It’s a relevant question and should be answered. We have explained it in details. See Our Analysis on
I will say however the one thing that perhaps is a silver lining is that a lot of times what they will do is your credit score has gone up or down due to this reason. They are trying to educate you as to what affects your credit score and I do appreciate that.
If they say well your credit score went down because you’ve utilized too much of your credit limit then that they’re teaching you capacity ratio and utilization ratio and tell you that don’t spend too much on your credit cards because it could negatively impact your score.
Maybe you recently closed out a trade line they’ll say oh your credit score went down because you closed out a trade line which has been helping you so far or maybe you’ve paid off a credit card and full and your score went up. I really appreciate the fact that they’re educating people on what does affect credit so I will give them a thumbs up on that.