After investigating is CreditKarma.com legit or not, we got a lot of questions about credit scores and credit reports. Hopefully, this can help clear up some of the most common credit score misconceptions.
Update: A Credit Karma tax review is here looking at the new free tax returns offering by CreditKarma.com.
Update: Now CreditKarma.com offers free credit report monitoring. Check out the Credit Karma review of free credit monitoring service.
Credit scores are confusing to many people. This is not the result of ignorance or being naive. Credit scores are not consumer products. They were (are) meant to be used by financial institutions. These lenders are the ones who pay for the credit scores. Banks and lenders are credit score customers, not the people who are being scored.
Credit scores are not a free, open system. Rather, they are a product, sold by Fair Issac. They charge money for each credit score calculated. Fair Issac’s customers are banks, mortgage companies, and other lenders, not you. In fact, a quick look around the Fair Issac website should show you that this is not a company concerned about selling products or services to individuals as customers.
Fair Issac has a separate website and separate company face called MyFico that deals with regular people instead of lending institutions. MyFico will gladly sell you your credit score, or charge your for credit monitoring. But, make no mistake, this is an additional revenue stream for the company, NOT its core business.
Credit Score Versus Credit Report
Making things even more confusing, credit scores are calculated from credit reports. Fair Issac does not have credit reports. They use credit reports from the three major credit reporting bureaus, Experian, Transunion, and Equifax.
Experian, Equifax, and Transunion do not make credit scores. More specifically, credit bureaus do not make FICO credit scores. They don’t like missing out on all the money generated from credit scores, so they made up their own credit score, but nobody uses it. Whenever someone is talking about your “real credit score” they mean a FICO score from Fair Issac, not one of the new credit scores from Transunion, Experian or Equifax.
Different Types of FICO Scores
If that weren’t confusing enough, there are more layers of confusion. There is not just one FICO score.
Fair Issac sells more than one kind of credit score. However, each credit score is called a FICO score. That means that even if you get your FICO score, you might not have your “real credit score” which is one of many different FICO scores available.
The different FICO scores rank different things in your credit report, different ways. What makes a person more or less likely to repay a car loan, for example, differs from what makes a person more or less likely to repay a mortgage home loan. Thus, different scores. A car dealer wants the FICO score for car loans, a mortgage company wants the FICO score for mortgages.
Even if your mortgage guy or your car finance guy shows you your actual credit score that they used for a loan, it will still be different from the one based on the other two credit reports and different from the other types of FICO scores.
In other words, there is no one “real” credit score.
How Do I Get My Real Credit Score For Free?
In a recent review of CreditKarma.com we showed you how to get your credit score for free. As far as I know, Credit Karma is the only way to get a free credit score online without having to sign up for a trial offer or buy something else.
The free credit scores from CreditKarma are real credit scores. However, you have to remember all of the information above.
- Credit scores from CreditKarma.com are based on one of three possible credit reports. All three possible scores are “real scores”, but a lender might buy a credit score based on one of the other two credit reports.
- Credit scores can change daily. If you get a score on Monday, and a bank reports a late payment on Tuesday, then the credit score you get on Wednesday will be different (lower). The credit score you got on Monday is your real credit score FOR MONDAY. Your credit score for any other day can be higher or lower.
- There are different kinds of FICO scores. The one you get from Credit Karma is not one of them.
After looking into it to find out if Credit Karma is a scam I feel comfortable recommending it to readers as a good way to get a credit score for free without getting ripped off. There are ads on the website and they might send you emails, although I have only gotten monthly ones that say my credit score may have changed. Getting your credit score online from CreditKarma won’t make anything less confusing, but you can see if it’s moving up or down and do something if necessary.
Otherwise, there isn’t much you can do about trying to get an “exact” number. If you are close to a credit score number you need for a loan, you can improve your credit score but it takes time. Keep making all of your payments on time. If you have the resources, pay down some balances to lower your credit utilization ratio. Then wait. There isn’t much more you can do.