- Credit reports are detailed documents containing your credit history and score, general financial history, and more.
- Credit Karma is a reliable way to get a general idea of your credit history and health, but not as accurate as a score from a major bureau.
- In addition to Credit Karma, there are many other reliable and free or for-fee ways to get your credit history and keep track of how banks and creditors see you as a current or prospective customer.
Few reputations are as up and down as that of personal credit. Some view it as a necessary evil, some view it as simply evil, and others embrace it. In all reality, a credit score can be a boon when it comes to adulthood and purchasing power — if handled properly. An important part of using a credit card and building a great credit score is routinely checking your credit score. But how do you go about that?
If you are looking into specific services, how accurate is Credit Karma, and should you trust it? But first, let’s look at what goes into your credit report and how you can go about retrieving it.
What’s a Credit Report?
When looking for your credit score, one of the first things you’ll come across is a credit report. Not to be confused with your credit score, which is a numerical score that signifies the health of your overall credit, a credit report is more in-depth and contains the following information about you:
- Name, address, phone number, Social Security number, and employment history
- Bank accounts and their current financial standing
- Detailed credit reporting that includes your lines of credit open or closed, current standing, and payment history
- Your Equifax, Experian, and TransUnion major credit bureau scores
A credit report is an important document that essentially paints a picture of your credit history and general credit health. These documents cover a lot of ground and can be up to 100 pages or longer. The three major credit reporting agencies — Equifax, Experian, and TransUnion — generally appear on credit reports from third parties, and each offer one free report each year as well (but often without credit score).
When Do You Need a Credit Report?
Despite what many think, credit reports and credit checks should be done even if you’re not in the market to buy a house or a car. A credit report can help you determine if you’ve been a victim of identity theft, help you ensure all information is accurate, and give you ideas about what you need to fix. But, despite a credit report’s importance, 54% of Americans have claimed they don’t check their credit at all.
There are a number of other reasons to check your credit report at least annually:
- Your major credit bureau scores, including FICO scores, rely heavily on your credit utilization. A credit report gives you a detailed credit history that can help you get a high-level view of your credit utilization to ensure you’re not carrying too much of a balance on your card(s).
- Home, auto, and other major loans rely on your credit score. The higher the score, the better your interest rates.
- Credit card companies and financial institutions use your credit score to determine your eligibility for new cards as well as what kinds of interest rates and limits you’ll receive.
- Many landlords will review your credit history to see your credit score and payment history before approving you for an apartment or house.
- Student loan companies will look at your finances, including your credit report and history, to determine financial need for a loan.
The bottom line is that there are many different credit-related reasons for checking your report, and all of them carry major implications. You can’t remedy a problem you don’t know about, and the best way to be aware is to keep an eye on your credit report.
Hard vs. Soft Credit Inquiries
During your credit journey, you’ll run into hard and soft credit inquiries. These both give a view of your credit history but to different extents and for different reasons.
Hard inquiries are usually performed during your application for a new credit card or loan, be it a personal loan, auto loan, or home loan. After applying, a lender will run a hard inquiry and look at your credit profile. This gives them a full rundown of your credit, allowing them to see your payment history, actual FICO score and other bureau scores, and your general credit usage.
This helps them make an accurate assessment of your risk to determine if you qualify for a loan and what kind of interest and limit you should be given. This process is also standard for mortgage lenders, so expect a hard inquiry if you’re looking to buy a home.
Although often necessary, a hard inquiry can negatively impact your credit score. This is especially true if you have multiple hard inquiries performed within a year. Generally speaking, any hard inquiries performed within a two-week period carry the same weight, so try to stack up hard inquiries while shopping for the best credit terms within a brief period. These won’t hurt you any more than having one inquiry.
A soft credit inquiry won’t ever hurt your score, so there’s no risk. These can be used for pre-approval processes with loans. They can be performed by potential employers and by you using any number of free sites, like Credit Karma.
What Else Impacts Your Credit Report?
Before we answer, “How accurate is Credit Karma,” let’s look into what else impacts your report. Beyond having too many hard inquiries, there are many things that can help or hurt your credit score and overall credit report. These include:
1. How Many Lines of Credit You Have Open
There’s a happy medium to be found between enough lines that help you build your score, but not so many that you appear irresponsible. This can vary, so again, routinely checking your credit report is key.
2. The Age of Your Credit
Generally, the older a line of credit, the better. New credit isn’t inherently bad, but older lines of credit in good standing will reflect well on your credit and help your score trend upward. It’s even possible to build credit without a credit card at all.
3. The Utilization of Your Credit Accounts
When using your credit and if carrying some balance, keeping your overall balance below 30% of the credit line’s limit may help your account’s standing. Once you start using too much of your credit, your score can take a hit. If you have an old account you no longer use, it can be beneficial to keep it open but carry no credit rather than close the account.
4. Missed Payments
A missed payment on a credit card or other line of credit can cost you as many as 100 points off your credit score. While you can build you score back, losing that many points can equate to losing months of hard work.
A common question is, “How long does a bankruptcy stay on your credit report?” A Chapter 7 bankruptcy, which involves taking one’s assets and selling them to cover debt, stays on your credit report for 10 years after the filing date. Chapter 13 bankruptcy, which involves a repayment plan, lasts for seven years after bankruptcy filing. While bankruptcy can clear your debts, it does take a hefty toll on your overall credit score.
To learn more about the different factors that affect your score, view our comprehensive guide on how credit scores work.
How Does Credit Karma Work?
While looking into your credit health, you’ll undoubtedly come across Credit Karma (creditkarma.com). Credit Karma is a free personal credit monitoring and reporting site that gives you a rundown of your general credit usage, scores, and health — although the company is not a credit bureau.
When using this service, you’ll create a Credit Karma account, put in your essential information, and then get a report. This report will give you a breakdown of your credit usage, account totals, payment history, and recommendations on what you should do to increase your score. They’ll also suggest various credit cards and loans. If you choose any of these, Credit Karma gets paid by the lender.
How Accurate Is Credit Karma?
You might be wondering how Credit Karma can get your credit scores without negatively impacting your credit score. Credit Karma uses the VantageScore 3.0 model (also shortened to vantage 3.0 in some cases), which is a collaborative effort between the three major credit bureaus.
Your VantageScore is a combination of all three scores, averaged out using a formula. This score is then broken into an estimate of your Equifax and TransUnion scores.
While neither score is as accurate as getting your Equifax or TransUnion score from the actual bureau, they’re both pretty close.
Is Credit Karma Safe?
As the old saying goes, “There’s no such thing as a free lunch.” Well, with Credit Karma, you really are getting a free service. That being said, Credit Karma is a for-profit business that makes money off any loans or credit cards obtained through their recommendations on the site. Again, you don’t have to choose any of these Credit Karma offers, but they’ll be on the site while you’re browsing.
Beyond this, Credit Karma carries the same risks as any site that contains your personal information. They’re vulnerable to cyber threats like any other site, but beyond that, there isn’t any added risk. The decision to use Credit Karma is ultimately yours. If in doubt, then you’re probably better off ordering your credit report with score from the credit bureau directly even if you have to pay for it.
My FICO vs. Credit Karma
When looking at your credit scores on Credit Karma, you’ll get a general idea of your scores. Despite this, your FICO credit score, the general credit score used by the major bureaus, may differ greatly from the VantageScore given on Credit Karma.
Each bureau uses their own criteria to determine your score, so discrepancies are to be expected. Furthermore, the VantageScore method used to get your Credit Karma scores doesn’t require the same hard inquiries and can err in either direction, positive or negative. Because of this, your free credit report should be used as more of a general guide rather than a hard and fast score.
Other Credit Report Services
Beyond Credit Karma, there are a number of other credit report vendors. Each of these can vary in features, pricing, and accuracy, so use them at your own risk.
This service is sponsored by Equifax, Experian, and TransUnion, so it’s about as official as it gets. This service can be used for free once a year to get your full and totally free credit report (although not your credit score). They also offer resources on protecting your identity, reading your report, and more, making it a great stop for those new to credit.
Using the VantageScore system, Privacy Guard offers credit reporting and monitoring. Credit monitoring can be a great way to provide peace of mind, especially if you’re planning on traveling and don’t want to worry about your accounts. This service is not free.
Much like Privacy Guard, Identity Force is all about security. This paid service can help you keep an eye on your accounts and will alert you to any suspicious activity or attempted inquiries made on your accounts.
This service gives you monthly access to the same three FICO reports major lenders will look at. While not a free service, this is the most accurate available source. The website even offers a free credit score simulator that can be an informative tool to helping you understand how different factors affect your credit score.
Credit Reports: Something You Can Be Proud Of
Whether you’re looking at a free credit score from Credit Karma or your annual freebie report from TransUnion, Experian, or Equifax, you can be sure of one thing: Your credit report is ultimately yours. Your credit history is part of your personal finance, which is exactly that — personal.
While nobody will be as accurate as the big three, free credit monitoring can still be a great way to stay on top of your general credit health. Your credit takes years to perfect, and with so many options available to get your credit information, there’s no reason to be unaware of current or potential problems. If mistakes do pop up on your report, you have the power to dispute them.
You can snag a free score or pay for a premium service. Either way is better than the alternative: ignoring your credit and spending years trying to recover.
You’ve worked hard to get where you are now. Reward yourself by monitoring your credit and getting the most out of that hard-earned power that comes with a stellar score. You and your future are worth it.