Why You Need More Than Credit Karma for Credit Confidence

As a realtor (and former car sales professional), I’ve talked to a lot of people about their credit score. I find that many consumers rely on Credit Karma to know where they stand financially. However, in my experience, Credit Karma has never been accurate. But people use it because it’s free.

Credit Karma’s Help Center transparently reveals its service is “free” by generating revenue through advertising partners. The service provides you with personalized offers that Credit Karma algorithms calculate might be helpful to you based on your current credit situation.

Offers may include refinancing options if you look like you might be overpaying for a loan, or credit cards that could help you optimize your savings and earnings. When you click on their ads or sign up for one of the offers, Credit Karma gets paid.

These offers aren’t the devil. They can be quite useful (and sometimes very expensive). Credit Karma as a whole can give you a range and overall all pulse on your credit health. But, Credit Karma has some flaws that make is so you cannot depend on it to tell you the whole story, or even enough of the story.

Most importantly, it only shows you your TransUnion and Equifax credit reports. Experian is not included in Credit Karma’s algorithms. In regards to the service’s credit tracking function, it only tracks TransUnion.

If you think your credit score is below 500, 600…or even if it’s in the low 700s, you should definitely consider bringing the big guns. Click to watch a quick video to learn more

Before you start checking your credit, make sure you’re looking at your real credit score, according to “How Many Credit Scores Do you Have, and Which One Matters Most” from The Motley Fool Blog.

There are several credit scoring formulas out there that use data from the three major credit bureaus, but only one lets you know what lenders see: the FICO score, which is based on the consumer credit files of each of the THREE CREDIT BUREAUS — TransUnion, Equifax and Experian. The FICO score is used in over 90% of lending decisions, so it’s easily the most beneficial for you to check.

The confusion comes when each of your three scores from the different bureaus are different. This happens because —

  • A: Some creditors report to all three bureaus and some only report to one or two
  • B: A different number of credit inquiries to the bureaus most definitely affect your credit, usually negatively
  • C: Errors. If one of the credit bureaus mistakenly lists one of your accounts as “past due” or is reporting an account that is not yours, the three scores can vary quite a bit. Looking for errors is the No. 1 reason why checking only one or two of your credit reports is not enough.

How your various scores are used depends on what type of credit you are applying for, as well as what credit-checking system the lender is using.

If you are applying for a mortgage, lenders will almost always check all three of your FICO scores. They generally use the middle score to determine your eligibility, but this can vary among lenders. So, if your three FICO scores are 708, 715, and 695, then the 708 score will be used to determine whether you qualify and what your rate will be.

On that note, have a credit score in the high 600s or low 700s really isn’t that great. You are still paying a lot more interest than someone with an 800 credit score. As I referenced earlier, The Motley Fool Blog says increasing your credit score above 800 will put you in rare company. In fact, only 1 in 9 Americans can claim they’re members of this elite club. Mean while, 8 out of 10 Americans have less than perfect credit. If you’re like the majority, you’re paying higher insurance premiums, higher interest rates and you risk your ability to get an apartment or are required to pay a high security deposit on utilities. And, if you’re trying to get a job in Corporate America, be prepared for the employer to request to check your credit before they high you.

Contrary to popular belief, racking up a high credit score is possible! First, if your credit score is below 740, consider going to an expert for help repairing and building credit. P.S. I’m a credit specialist and can work with anyone in the USA, so contact me now!

Then, once your FICO ducks are in a row begin following 5 simple, disciplined strategies to get from a 740 to an 800+:

  1. Pay On Time: Paying bills on time accounts for 30% of your FICO score.
  2. Understand your Credit Utilization: Keeping your debt revolving between 15 and 30%, and showing 70% available credit accounts for another 30% of your FICO calculation.
  3. Vary The Kinds of Credit You Use: Creditors want to see a good mix credit on your report, i.e. mortgage, car loan, credit card, bank card, student loan, etc. This accounts for 10% of your credit worthiness.
  4. Keep Credit Lines for 5 Years: A long credit history with an open account in good standing of 5 years or more shows stability and trustworthiness. Fifteen percent of your FICO is calculated by the average age of your credit accounts.
  5. Decide if Opening a New Credit Account is Beneficial – As I said earlier, having a good mix of credit lines is helpful to build credit. But be mindful when applying for credit. Opening account for bigger money items like a washer and dryer or a car is usually necessary. But ask yourself, do you really need that Kohls’s card when you’re buying a $19 T-shirt? New credit inquiries comprise 10% of your FICO score.

 

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Sylvia Dana
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Coldwell Banker AJS-Schmidt, 3744 28th St. SE, Grand Rapids, MI 49512
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July 10th, 2017 by