credit monitoring

Is the Credit Karma Free Credit Report a Scam?

August 24, 2020 By Jeffrey Strain 17 Comments

Credit Karma recently made the announcement they would offer their users free credit reports on top of the free credit scores they already give. The question many people have when they hear about something like the free credit report is, “What’s the catch?” and, “Is it a scam?” The good news is the offer isn’t a scam, and for the most part, there aren’t any catches involved with getting it.

Is the free credit report really free?

Many companies that offer “free” credit reports technically come with no cost, but there’s a catch. In order to see the report, you have to give your credit card and sign up for a free month of credit monitoring with the company. If you cancel the credit monitoring before the month free trial is up, then you don’t get charged for anything. If you accidentally forget, your credit card ends up being charged. The FCC also reports that canceling can difficult, and it is not always done the first time you request it to be removed. So while the report is technically free, there’s a catch that can cost you money down the line.

Credit Karma set up their no-cost credit report offer the way they did with their no-cost credit score. There is no need to give your credit card to be able to see the report. They are able to do this because of the way they make money. Other sites make their money by selling the credit monitoring services, but Credit Karma makes its money through offering services where they get a commission if you sign up. These credit scores and credit reports don’t come cheap, as the company spends tens of millions of dollars to get them, but they make enough on the advertising to their users to more than make up for these costs.

Is it a real credit report?

There are some who take issue with the free credit scores from sites like Credit Karma, Credit Sesame and Quizzle. They question the efficacy because they aren’t FICO scores. There’s a debate as to whether this really matters or not, but it’s a concern to some people. They want to know if the credit report is from the credit reporting agencies, or if it’s some type of other credit score. Good news: The reports are legitimate.

In this instance, the credit reports given are from TransUnion and Equifax, and it’s the credit report you would get if you bought it directly from them. While it is a real report, it’s only one of the three main credit reports available. You do not have access to your Experian credit report from the site, although you can get your Experian report directly from them free of charge. You can also get your credit report for all three agencies at no cost once a year (plus in some other specific circumstances) from AnnualCreditReport.com (you can see how the Credit Karma and AnnualCreditReport offers compare here).

How Does This Help?

When you are looking for financing (or anything else regarding your credit), it is nice to have a leg up. Now, not all lenders disclose which reporting agency they check. Additionally, if you need a mortgage, they often take all three and average them. So, having the info helps you stay on track, but you will never know exactly what the bank sees until they show you personally.

How often can I see my credit report?

Many people wonder if the credit report is a one-shot deal. That is, once you’ve seen it one time, then you can no longer see it again to see if it has changed in the future. The answer it no. In fact, you can access your updated report as frequently as once every week if you desire. Although, many creditors only update the reporting agencies about once every month.

Conclusions

The Credit Karma free credit report is not a scam, or a bait and switch program. The only catch is that in order to get it, you will be given a lot of advertising offers which you can choose to accept or decline. You won’t have to give your credit card to access the report, but you do have to give them sensitive financial information. It comes with some risks, but nothing out of the ordinary for a credit reporting site.

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Will Capital One Make Credit Karma Obsolete?

June 9, 2014 By Jeffrey Strain 4 Comments

Credit Karma vs Capital One free credit scores

First it was Discover. Now it’s Capital One that is throwing a wrench into the business model Credit Karma has created for its livelihood. There continues to be huge changes in the arena of free credit scores, and Capital One has taken a step closer to making Credit Karma (and other free credit score companies like Credit Sesame and Quizzle) obsolete.

What is the big change over Discover? A dedicated area where customers can learn how to improve their credit score, and learn how financial decisions they make can affect it. In other words, they aren’t simply giving their customer a credit score and letting them figure out what that means on their own. They are providing tools so the customer can monitor, improve and educate themselves about their credit score.

More credit cards are offering credit scores these days (these include Barclays, Capital One, Discover, First Bankcard, and Walmart). Many are doing so with FICO scores instead of FAKO scores, although Capital One is also offering a FAKO score. This trend has the potential to seriously shake things up in the world of free credit scores. As more credit cards are giving credit scores at no cost to their customers with their bills, it’s becoming less necessary for people to search for a place where they can obtain their score. In other words, instead of people having to go out looking for it, their score is starting to come to them.

This move by the credit card companies has the potential to become a major disruption to the business model of free credit card sites. Why would consumers seek out a place to get their credit score for free if they’re already getting it at no cost, delivered directly to them from their credit card company? One argument Credit Karma could make against cards like Discover was that it provided a score, but it didn’t provide the credit monitoring and educational material on what the score meant to the consumer. Capital One, with their Credit Tracker, has taken a big step to move even closer to providing exactly what Credit Karma provides.

Instead of just a score on a credit card statement, Capital One has created a destination area on its website they call Credit Tracker. The goal of this area is to allow their customers to view their score, track it, and then strengthen their credit standing. This area gives customers access to their credit score, but then takes it a step further. In addition to the score, customers have access to a credit report summary and credit history which includes such basics as monthly payment amounts, accounts opened and number of inquiries. It also provides credit monitoring by issuing credit bureau alerts which can help customers spot potential fraud more quickly.

To better educate their customers, they provide a credit report card which gives a letter grade to a number of key factors which help determine each individual’s credit score. This, combined with a credit simulator which shows how different decisions the customer is considering taking will impact their score, Capital One has built an educational portal with tools for those interested in improving their credit score. They’ve taken it several steps beyond simply providing a score on a monthly basis to their customers.

The question to Credit Karma is how much of a threat to their business model are credit card companies like Capital One? The mere fact that more and more people are getting a credit score at no cost without even to have to seek it out is already a disruption to sites which offer free credit scores. While Capital One isn’t currently going after their income source (Credit Karma makes its money by taking the information they have to make offers to its users, then earning money when customers sign up for those offers), it’s not hard to see with their Credit Tracker dedicated area, they are only a step or two away from being able to do this if they want. If they do, it could have a devastating effect on the current business model of all free credit score providers, and even potentially make them obsolete.

How this will all shake out is still anyone’s guess, but it’s becoming more clear that there are some major changes is store for all parties offering free credit scores, and those who don’t adapt and differentiate themselves may find themselves irrelevant in this sector in the coming years.

(Photo courtesy of Eric Hauser)

Credit Karma vs FICO Score

May 12, 2014 By Jeffrey Strain 21 Comments

One of the negative points thrown at websites like Credit Karma is that the free credit score they give is not your FICO score. Credit Karma offers three different types of credit scores, all supplied by the credit reporting agency TransUnion. They offer the TransRisk New Account Score, VantageScore, and Auto Insurance Score. What these all have in common is that they are not FICO scores, but blended scores that are often referred to as FAKO or educational scores. The question that many consumers have is whether or not it’s important that the score you get from Credit Karma isn’t your true FICO score?

Why People Don’t Don’t Like The FAKO Score

Some people who have a problem with FAKO scores point to a number of reasons why they feel a FAKO score is inferior to your FICO score. One of the reasons is when a lender pulls your credit score, they are going to be looking at your FICO score, not one of the scores that you get from Credit Karma. On the surface, this makes sense, but the reality is that there probably isn’t a whole lot of difference. That’s because you don’t have a single FICO score. Different lenders will be pulling scores that are weighted to take into account the risk factors that matter most to them. For example, the score the car dealership gets for you from FICO will be different than the home loan officer. In other words, the score they get will most likely not be the same number that you receive from FICO.

Another complaint that’s often made is that a FAKO score isn’t as reliable as a FICO score, and this may mislead those who are getting them. It’s certainly true that anyone who gets a free credit score from Credit Karma needs to realize that the score is not their true FICO score, but that doesn’t necessarily mean that the score is unreliable.

What Do You Need Your Score For?

A lot depends on how the consumer is actually going to use the credit score. There’s an implied assumption that those who are seeking out their credit score are only doing it because they soon plan to take out a loan. This certainly could be the reason that they want to know their credit score, but there are also a lot of other legitimate reasons that people are interested in what their credit score is. It’s how the consumer wants to use the credit score that determines which of the two is a better choice.

When Using Credit Karma Is A Good Idea

If you aren’t going to be getting a loan right away, getting a free credit score from Credit Karma has the huge advantage in that you can track how your score changes over time. This can give you a better understanding of what affects your score and how it can change, depending on how you handle your finances. By being able to see your score on a monthly basis, it gives you a wonderful opportunity to improve your score. You can also get free credit monitoring so if something is put into your credit report that doesn’t belong there, you can catch it right away, so that your score remains high, rather than get a huge surprise if you are planning to take out a loan.

Another huge advantage that Credit Karma has over getting your FICO score is that it’s free. If you want to find out your FICO score from MyFICO, it’ll cost you $14.95 (although you should be able to find online discount codes which will allow you to get it for less than this). So if your main purpose for wanting a credit score is to see where it is and try to improve it for the future, Credit Karma (or other sites that give free FAKO credit scores like Credit Sesame or Quizzle) should fit the bill perfectly and make for a better option than your FICO score.

When You Need To Get Your FICO Score

If, on the other hand, you need an accurate score because you will be applying for a loan, I would probably opt for your MyFico score. As mentioned above, it’s probably not going to be exactly the same as the lender will get, but it’s the basis of that number so it shouldn’t be too far off of it. With Credit Karma (or any or the other sites), you simply don’t know how far off it will be, and in some cases a 10+ point swing can mean a different interest rate.

It’s also important to note that there is a risk to using third-party services for your credit score like Credit Karma. They recently were forced to settle with the Federal Trade Commission (FTC) do to lax security on their mobile phone app which left their customer’s sensitive financial information vulnerable to hackers. There is always an added risk of having sensitive financial information stolen when you give it to third-party sites like Credit Karma.

There is also a third option. A number of credit cards like Discover have started to give customers their FICO credit score on their monthly statements. If you aren’t credit card adverse and you have the discipline to always pay off your credit card balance each month, this can be a great alternative to the two.

For how to raise your credit score, or other ways to check your credit score check out these articles.

How to Raise Your Credit Score By 200 Points
Credit Cards That Give You Your Credit Score for Free
Forget Credit Scores: Now Almost Anyone Can Finance a Car

(Photo courtesy of Sean MacEntee)