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Credit Karma Tax Review Free Scam or Good Filing?

Update: See the comments below, plus the emails I got, and it seems that while Credit Karma Taxes does work, it has problems where most new software does, around the edges. Everything from state-specific glitches, to problems with bank transfers, it seems that those are the places where Credit Karma tax filing doesn’t work so well, compared to programs like TurboTax or TaxCut that have had years to chase those bugs out of their versions.

Credit Karma Tax Review

CreditKarma.com recently started offering a new free tax return service, so it’s time for a Credit Karma tax review. The Credit Karma tax scam concerns are pretty much the same as with the original Credit Karma. You are handing over a lot of personal and financial data. The company has been around long enough to have earned some trust, but concerns about all online financial offerings are real. One main difference between Credit Karma and TurboTax, or other offerings, is that you cannot buy and download an offline version. You will fill out all tax forms online and the hidden Credit Karma tax calculator will perform all the calculations online, behind the scenes.

Initial Credit Karma tax reviews are mixed, so let’s take a look. (Make sure you are not on CreditCarma, KreditKarma, or any other variations which have been reported as scams.)

First and foremost, you must sign up for Credit Karma in order to use the free tax filing software option. If you don’t like this, then you’ll need to do your taxes somewhere else. This is also how the Credit Karma free taxes offering makes its money. It is basically, a way to entice people to join and use the traditional Credit Karma system. The main Credit Karma shows you ads and offers to get credit cards and loans. They also send out periodic emails reminding you to come back and check your free credit score, and market credit cards that you “may qualify for.”

Credit Karma Tax Complaints and Concerns

It looks like Credit Karma is ready for some complaints and concerns about its free tax service. The front page attempts to answer some basic questions common to typical free tax filing scams. For example, it calls its service “Truly free tax returns,” and says there are no upsells, no hidden fees, and that it is free for everyone. This is because many so-called free tax offers end up doing one of those things. So far, there should be no Credit Karma tax complaints about any of that.

For example, the original business model for TurboTax online was to let you fill out your return for free, but then charge you to file your return, or to print it. This, of course, means it isn’t free at all, since doing your taxes, but neither filing nor printing them, is inherently useless. This year, TurboTax says, Free to File and Free to Start. Notice what’s missing?

But, this isn’t a CreditKarma tax review vs TurboTax review, this is just a Credit Karma tax return review.

The main CreditKarma tax complaint, that I hear, revolves around giving them so much information. In particular, some people don’t like having to give out a phone number. I suppose, if you are willing to hand over your address, your Social Security number, and all your bank information, but NOT your phone number, then this isn’t for you. It seems an odd place to draw the line, but always stick with what you are comfortable with.

So, let’s start with what we can find in bold before we search the fine print. First, it says that you get free federal and state e-filing. It says that they won’t charge any fees on your refund (if you get one). This was an older trick to get people to file for free, and then require that they get their refund on a debit card, or into a certain account, often with a fee. Faster, or rapid, refunds often still have fees, because they are actually loans with your refund as collateral. It doesn’t appear that Credit Karma offers a rapid refund type service.

Who Can Use Credit Karma Tax For Free?

Often times, free tax offerings are limited to the very basic kinds of tax returns. This was another trick of TurboTax, TaxCut, and the like. If you were filling out a 1040-EZ, then your taxes were totally free. Of course, filling out a 1040-EZ takes about 10 minutes and isn’t at all complicated, so it wasn’t worth much. According to Credit Karma they support a pretty wide range of tax returns, so let’s start with what they do not support when using Credit Karma taxes.

You cannot do your taxes on CreditKarma if you:

Need to do multi-state or part-year state filing — This should only really matter if you moved or happen to split time between two states. This is much more common in the Northeast where the states are pretty small and someone can realistically work/live across state lines.
Need to report Foreign Income – This can get tricky fast, so I don’t blame them here.
Need to file Married Filing Separately, in community property states. – I can’t claim to have any knowledge about what the deal is with this, but if it sounds like you, don’t use Credit Karma tax to do your taxes.

Credit Karma tax filing says it supports all the basics, plus a lot of the more advanced forms as well. Schedule A, for itemized deduction is a must, and it’s supported. There is also Schedule B and D (interest and dividends, and capital gains). Forms for Child Care, HSA accounts, and all of the other “usual” IRS forms I could think of were supported as well. I pulled up my taxes from last year, and while my return isn’t super complicated, I am usually forced to buy higher-end tax software to complete my taxes. I did find that Credit Karma says it supports all of the Forms I used to file my taxes last year.

Can Small Business Owners or Self-Employed Use Credit Karma?

As a small business owner, no Credit Karma tax review is complete without knowing if I can even use it. This is where most free tax offerings bail out. As a self-employed, freelance writer, with an LLC, I’ve never been able to use a free tax service. In fact, I actually have to buy the more expensive versions to do my taxes, mostly because I use the home office tax deduction. Credit Karma tax says you can file as self-employed or as a single member LLC. It specifically states that it will do a Schedule C, a Schedule E and a Schedule SE. Dig a little deeper and it does support Form 8829, which is the Home Office tax deduction form, as well as other small business tax forms.

However, you cannot use Credit Karma free tax filings if you need forms used for an S corp, a C corp, partnerships, or multi-member LLC. That means, it’s basically self-employed (just you, and possibly a spouse) only.

What Is the Catch for Using Credit Karma Tax?

So, what’s the catch for using CreditKarma tax? The free Credit Karma tax catch is that when you sign up, you agree to let them use the information from preparing your taxes for the rest of their business as well, which is referring you to lenders via targeted offers and ads.

It isn’t really a catch so much, as you have to remember what the company is, and how Credit Karma makes its money. All of CreditKarma.com revenue comes from ads and referrals to lenders. Credit Karma offers you a free credit score so it can pull your credit report. Once it has your credit report, it can use that information to match you with lenders. For example, if you have crummy credit, it can offer you cards for bad credit. Alternatively, if you have great credit, it can offer you harder to qualify for cards with better rewards.

There are, however, things missing from your credit report. Your income is the biggest one, and it’s also very important to lenders. Also, your credit report shows what your mortgage balance is, and then your mortgage interest tax deduction provides and easy way to calculate the interest rate, so they know what kind of refinancing to offer to you. If you do have a small business, your Schedule C lets Credit Karma know to offer you business credit cards. The amount of revenue and expenses on that Schedule C gives them an idea of which business credit card to offer, and so on.

Using Credit Karma Tax Filing Software

The online Credit Karma tax works pretty much the same as they all do. It starts by asking you questions. Are you married? Do you have kids? Did you do this, or that during 2016, and so on. As with all tax preparation software, the trick comes when you aren’t really sure about something. Does selling things on the side at eBay count as a small business? Does a new adding machine count as an office supply, or as office equipment, and so on. Theoretically, there are various help options from Credit Karma and everyone else to help answer some of these questions. If you are or are not comfortable using TurboTax, the same probably applies to Credit Karma’s taxes service too.

Once you’ve answered the questions, you start filling in numbers from the various tax forms you have W2, 1099, and so on. Credit Karma does all the math and fills out the forms as it goes. When you are finished you can e-File directly with the IRS, and your state. You can also print your taxes. I highly encourage you to print your taxes when you e-File them. Keep the paper copy for three years. With a new tax service like this, you don’t want to depend on them to keep your data. (This is true for any online tax service.)

Importing TurboTax Into Credit Karma

One last possible Credit Karma tax gotcha is that while most tax software, like TurboTax, TaxCut, H&R Block, and Tax Slayer, will import your previous year tax data from other software, Credit Karma taxes do not import from any other service, so you’ll have to enter everything manually. This is particularly tricky for things that are carried over from year to year, but not such a big deal if you have a simple return. Still, it is important to note for this CreditKarma tax review.

Other Free Tax Filing Services

Keep in mind that if you have a simple return, and make less than $64,000, you can already use the IRS own Free File Software. Yes, you have to give them all your financial information too, but let’s face it, they already have it anyway.

Is Credit Karma A Scam or Legit Free Credit Scores?

Written by Finance Gourmet 149 Comments

credit-karma-scam The old maxim, “If it is too good to be true, it probably is,” holds up especially well in the world of personal finance. The concept of getting free credit scores has been mined by con-artists and scammers repeatedly. Unfortunately, most of these scams are perpetrated by well known companies and by the credit reporting bureaus themselves.

If you are looking for a Credit Karma tax review, it’s over here.

The free credit score scam usually goes like this. A company offers to give you a “free” credit score. To get your free score you have to sign up. If you don’t read every word on the screen or printed on the page very carefully (especially the ones in fine print), you might think that you are just signing up to get a free credit score. Gotcha!

What you are actually signing up for is a “free” trial membership in the company’s credit monitoring service. The trial is free for 30 days, or 90 days, but at the end of the free trial, you automatically subscribe to the fully paid subscription. This is why you had to enter a credit card number when you signed up. If they actually had to collect money from you at the end of your free trial, everyone would say, “No thanks.” Instead, they use that credit card to automatically bill you. Most of the time, they bill you for the whole year, in advance, all at once. That way, by the time you notice it on your credit card bill, it is too late for you to back out and get a full refund and since there is no way you want to legitimately subscribe to the service, they get you for 12 months instead of one month.

Worst of all, is that they will automatically renew your subscription when it expires, so 12 months later when you’ve forgotten all about how they screwed you over in the first place, they can do it all over again. It stinks of fraud, but all of the “disclosures” are made (again in tiny print, or buried in a six-page document), so technically it passes legal muster.

Transunion, Equifax, and Experian all pull this marketing scam on their own websites, right next to the part where they try to trick you into getting your “free” credit report that isn’t really free either.

Don’t forget you can get a real free credit report every 12 months (that’s once a year) by law. Don’t ever pay or subscribe to something to get your legitimate free credit report.

Tip: If you have to enter a credit card number, you are getting scammed. Real free credit reports DO NOT require you to enter a credit card number at all.

Free Credit Report from CreditKarma Scam Too?

Knowing all of this about how credit scores work and how credit repair scams an the like go down, I ignored the offer of “free” credit scores from Credit Karma. Scam, scam, scam, I thought.

But, then, I read a write-up about Credit Karma by a financial journalist that I happen to trust and respect. (It is a very small club.) That got me wondering about how it could be true that Credit Karma gives you your credit score for free.

With a legitimate financial writer’s endorsement in mind, I decided to try out Credit Karma. However, I did it very warily.

First, I signed up for a new email address to use so that I would know if Credit Karma sold my email address or spammed it with credit card offers.

Next, I obtained a one-time use online credit card number from one of my credit cards and set the amount to $1 (the lowest allowed) and the expiration to the next month (the shortest allowed.)

Then, I went to Credit Karma’s website at www.creditkarma.com

(There is no link, because I want readers to know that I do not get any sort of kickback, payment, or referral bonus for this review of Credit Karma.)

Continue here to see my full Credit Karma review.

What Is Your REAL Credit Score?

Written by Finance Gourmet 2 Comments

One of the latest trends in online personal finance is the idea of getting a free credit score. This plays so well because we all know how important our credit score is, but it is still relatively difficult for the average person to get and see their credit score. (Note this is different than getting your free credit REPORT, which you are entitled to each year by law.)

FICO and Real Credit Scores

The big problem with the concept of a real credit score is that there are lots of available credit scores, and none of them are fake scores, per se. After all, anyone can setup some math and calculate a number they call a credit score. The credit bureaus themselves created their own credit score called the Vantage Score. It’s a real score, created by real companies, and sold as a real product. It is also the actual credit score you get from Credit Karma if you use the Credit Karma free credit score service. However, very few lenders, relatively speaking, actually use the VantageScore when making their lending decisions. That doesn’t make it a fake score, just one that probably isn’t what will be used.

When most people say, “real credit score,” they mean a FICO score. Note that I said A FICO score, because there isn’t just one. After all, the point of a FICO score is to help lenders make statistically knowable lending decisions, and defaulting on a car loan is totally different than defaulting on a credit card loan, which is different than a mortgage, and so on. So, there are FICO scores for credit cards, FICO scores for car loans, and so on.

So, even if you are getting an actual FICO score, like the score you get from the myFICO service, it still may not be THE credit score that a particular lender uses when you apply for a loan, apartment, or job.

Where To Get Real Free Credit Scores

While there are numerous online services like Credit Sesame, Quizzle or Credit Check Total that offer free credit scores of various quality as a semi-standalone product, it turns out the best place to get free credit scores for real is from financial companies that you already do business with.

For example, some banks and credit unions will show you your credit score on your statement, or when you log into their website. One of my credit unions has a tab on the online banking page that says “Credit Score.” Click it, and it shows my credit score, the real, actual credit score that my credit union uses to monitor my account and offer me banking products. In other words, if I wanted to get a credit card from my credit union, or open a personal loan, that is the credit score they would check first before deciding whether to proceed. They only update the score once per quarter, but it is a good indicator of what my actual credit score is.

Several credit cards now offer you a free credit score, but again, the devil is in the details. The Capital One Rewards cards offer a free credit score, but if you look closely in the Frequently Asked Questions you’ll see that the credit score Capital One is showing you is a Vantage 3.0 score, not a FICO score. It goes on to say,

And, while Capital One doesn’t use it for making credit decisions, other lenders do.

So, yeah, the free credit score from Capital One isn’t even the credit score that Capital One uses.

Other cards are different. For example, the fine print on the Merrick Card free credit score says, “This is the score we use when making credit decisions.” So, that is very much a “real” score that one of your actual lenders is using. That does not mean that everyone else would use that exact score for other loans or banking, though.

The free credit score from Discover Card is “one of several factors we may use,” so that’s a definite maybe.

In reality the only time you will actually ever get a 100% true, real, free credit score is if a lender you are applying to agrees to show you the result of what they got. They are usually much more willing to do this when you qualify than when you don’t, so if you ever get approved for a loan, ask them what your score was.

How To Use Free Online Credit Scores

Unless you are actively applying for new credit, that actual number isn’t really all that important. What matter is if the number is going up or down. That makes free online credit scores a better tool for credit monitoring than figuring out your actual credit.

For monitoring the direction your credit score is moving, any one of these online services can be useful.

Most often, your score will move up or down based upon your credit utilization. Credit utilization is how much of your total available credit you are using. Less is better. The idea is that if you are using 75% of your total credit, you might be getting in over your head, whereas if you are only using 5% of your total credit, then it probably isn’t that hard for you to make your payments.

If, like many people, you use your credit cards for everyday purchases, but pay the balance off every month, this will especially be true for you. Depending upon which day your card reports your balance, they may report a small balance (if it was right after you paid it off), or a bigger balance (if it’s near the end of the reporting period and you are getting read to make a payment). So, don’t panic about small moves from month to month.

In the end, sound personal finance is always the same. Make all of your payments on time, and avoid paying penalties, fees, or interest as much as possible. Do that, and your credit score will take care of itself, whether you know what the real score is, or not.

Credit Karma Review – Complaints Accuracy Legit?

Written by Finance Gourmet 489 Comments

Earlier we discussed how I first found out about Credit Karma and how, as a seasoned financial professional, I was inclined to think that Credit Karma is a scam offer for free credit scores. I decided to do a review after seeing some Credit Karma reviews that don’t really answer my questions (or the questions others seem to be asking.)

Update: Read here about an opt-in service Credit Karma review credit monitoring as a free additional service.

Update #2: It appears that there is a free Credit Karma tax offering now available. Here is our Credit Karma tax review.

Before we get started, there is one very important thing to be aware of. There are scam websites out there that take advantage of people thinking they are going to CreditKarma.com. Remember, Credit is with a ‘c’ and Karma is with a ‘k’. If you somehow end up on either KreditKarma or CreditCarma chances are you are in for a scam. If you get asked to enter a credit card number, be sure you are on the right website first. Second, this review is only about CreditKarma’s free credit score service. This is NOT the only service that Credit Karma offers. They also offer other services. Credit Karma’s not free services will require you to enter a credit card number. If this happens, you are signing up for an additional service, and there will very likely be charges. In this review of Credit Karma, we are only talking about the free credit score service, not the add-on services.

There are multiple reasons for thinking Credit Karma’s service is not legitimate, but the main one is that credit scores are not free.

Credit scores are not free for you, they are not free for banks, they are not free for car dealers, they are not free for anyone. Credit scores are the “why didn’t I think of that” invention of the century where personal lending is concerned.

A company called Fair Isaacs takes information from the credit reports at any of the three major credit bureaus and then uses a proprietary algorithm to reduce dozens of pages or more into one single number called a credit score. It does not do this for free. Every time someone pulls your credit score, they pay. They may pay a lot or they may pay a little depending upon their agreement with Fair Issac, but they do pay. You can’t give something that costs you money for free unless you have another way to make more money than you are paying out.

Credit Karma Reviews of Free Credit Score

Since most free credit score scams are actually free trial offers that lead to an automatic recurring charge on your credit card, I figured that Credit Karma would want a credit card number before giving me my credit score. I know how to beat automatic charges on my credit cards, so I thought I would go through the process anyway and find out for sure whether or not Credit Karma was a scam.

The surprising thing was that they never asked me to enter a credit card number!

As you may recall, I had generated a limited use credit card number to enter, but I didn’t need it. Credit Karma asked for a lot of personal information, but never asked me to enter a credit card number nor any bank account information. In other words, they have no way to charge me for my credit score. It’s tough to scam someone when you don’t get any money from them.

That begs the question, is the credit score from Credit-Karma a real credit score?

Well, that sort of depends on what you mean by “real”.

You see, Credit Karma scores are real Vantage 3.0 credit scores. The catch is that Vantage credit scores are not used by most lenders or financial institutions. In other words, the Credit Karma score is accurate, but it is not the score that most financial institutions will be using when you apply for credit. Most banks and lenders use FICO scores, not Vantage scores.

Another credit score offering out there are calculators that “estimate” your credit score for you. The catch is that they estimate your credit score based upon the information that you provide. Chances are that there is no way you are going to enter all of the information that exists in your credit report, so it is not a very accurate estimate, no matter how good the credit score calculator program itself is. So, these CreditKarma scores are better than those kind of estimators.

With CreditKarma.com instead of asking me for my financial account information, they asked me for the same type of personal information anyone would need to pull a credit report and get a credit score on me. This does include your social security number and there is no way around that, so at a certain level, you have to trust that the Credit Karma website is legit.

Basically, like all online financial services it is safe, until it is not. That is, they use secure connections and encryption, and all that, but a determined hacker, or stupid employee can ruin it all. Unfortunately, this is true of any bank, credit card, or retailer out there. (See also: Home Depot hack, IRS fraud, identity theft… you get the idea.)

Credit Karma Complaints

The number one CreditKarma complaint is that the credit score is not a real FICO score. It is a Vantage 3.0 credit score. However, it is based upon your actual credit report data, so it is good for monitoring whether your score is going up or down, even if it is not perfect for knowing what your FICO score number is right this second.

See this for more information about real credit scores versus fake credit scores.

Now what would make Credit Karma the must have personal finance service for financially savvy people is that it does not just offer you your credit score for free once, but says that you can come back and update it as often as you like. I don’t know if there is a limit on how many times you can update, but I updated my free credit score from Credit Karma every month since May with no complaints.

In other words, I have gotten six free credit scores from CreditKarma.com without paying a cent, without buying anything, and without clicking on any advertisements. There are advertisements on the page, but unless they are the kind that pay just for showing up, they have earned nothing from me other than thanks and this review.

I recently setup an account for my wife (spouses can have very different credit scores even if “everything” is held jointly) and have started getting her free credit score as well.

No matter how it turns out down the road, for now, Credit Karma is a great deal for people managing their money.