There’s a lot of chatter about Credit Karma in the personal finance world, and for a valid reason. The online platform features useful tools to help you meet your credit and financial goals. But can Credit Karma help you improve your credit health?
Keep reading to learn how Credit Karma works, how it impacts your credit rating and a viable alternative to help raise your credit score.
What is Credit Karma?
Credit Karma offers a variety of credit, financial and educational tools and resources to help you achieve your money goals. You will also find recommendations from banks, credit card issuers, insurance companies and lenders on the platform.
What Does Credit Karma Offer?
Here’s a breakdown of Credit Karma’s offerings:
Free VantageScore 3.0 score
Credit Karma members get access to their VantageScore 3.0. It’s calculated using the information found in your Equifax and TransUnion credit reports.
You can also view your Equifax and TransUnion credit reports for free, along with free tips to help improve your credit health.
Credit Monitoring Services
When you sign up for credit monitoring, you’ll receive alerts any time changes occur in your credit profile. Real-time alerts also help you stay abreast of activity that could affect your credit score and resolve any issues that could arise promptly.
Credit Score Simulator
Wondering how your credit score will be impacted if you open a loan, pay down debt balances or take any other action that could affect your credit score? The credit score simulator can provide the valuable insights you need to make sound decisions.
Financial Education and Credit Advice
Credit Karma features an extensive library of articles and the latest credit score and interest rate trends. There’s also an overview of what affects your credit scores and suggestions to improve them on the dashboard.
Why is FICO Score Different Than Credit Karma?
The VantageScore 3.0 found on Credit Karma and your FICO score help lenders gauge your creditworthiness and decide if they should extend credit to you. Both span from 300 to 850 – the higher, the better. However, the numbers will likely vary as the credit scoring formulas differ.
VantageScore is calculated using these factors:
- Payment history: extremely influential
- Percentage of credit limit used: highly influential
- Age and type of credit: highly influential
- Total balances and debt: moderately influential
- Available credit: less influential
- Recent credit behavior and inquiries: less influential
Your FICO score is based on the following:
- Payment history: 35%
- Amounts owed: 30%
- Length of credit history: 15%
- Credit mix: 10%
- New credit: 10%
Also, note that FICO also offers industry-specific scores that predict the odds of you repaying a particular type of debt. There are auto loan, credit card and mortgage scores that range between 250 and 900. However, Vantage does not offer industry-specific credit scores.
Can Credit Karma Help You Improve Your Credit Score?
Signing up for a free account with Credit Karma won’t affect your credit score. However, applying for the recommended credit and loan products could result in a hard inquiry that impacts your credit score.
You can use the credit score simulator and follow suggestions provided by Credit Karma to possibly improve your credit rating.
What You Can Do to Raise Your Credit Score
For starters, you should review your credit report to ensure it’s free of errors or outdated information that could be dragging your score down. If you spot them, file disputes with the credit bureaus right away.
The next step is to focus on areas of your credit report that need improvement. Here are a few helpful tips:
- Get current on past-due debts and continue to make timely payments each month. Payment history is the most significant factor of your FICO score, and late payments could drop your score by up to 100 points.
- Try to pay more than the minimum each month on your credit cards to reduce your credit utilization ratio. It is the percentage of your credit limit in use, and you should aim for a utilization rate of 30 percent or lower to give yourself the best chance at a high credit score.
- Refrain from closing old credit cards as doing so could hurt your length of credit history.
- Lenders and creditors like to see a healthy mix of credit cards and installment loans. Furthermore, a balanced mix of credit could help your credit score.
- Only apply for credit as needed. Each hard credit inquiry could drop your score by 3 to 5 points, which could add up rather quickly if you submit multiple applications in a short period. (An exception to the rule applies when shopping for mortgages and auto loans – the FICO-scoring model recognizes it as rate shopping, and all the hard inquiries will be lumped together and only counted once if you select a credit product within a set period).
- Request goodwill adjustments for infrequent late payments on accounts that are otherwise in good standing.
- If you have collection accounts and charge-offs, ask the lender or creditor to settle in exchange for a pay-for-deletion. This means they will agree to remove the negative mark from your credit report in exchange for payment. (Be sure to get the agreement in writing).
How to Instantly Boost Your Credit Score
Experian offers a free tool that could instantly boost your credit score. It’s called Experian Boost and allows you to add positive on-time payments for eligible phone, utility and streaming services to your Experian credit report. In turn, your Experian credit score could increase right away.
Average Experian Boost users who witnessed a boost increased their FICO Score 8 from Experian by 13 points. Even better, late payments aren’t reported, and you can choose which accounts to include in your credit report.
Test drive Experian Boost today by signing up for a CreditWorksSM Basic membership. The free membership also includes 24/7 credit monitoring of your Experian report, credit report and score updates, and real-time alerts when changes occur in your credit profile and your.
