Our credit scores have been around for decades, but we haven’t been able to see them for free until recently.
The first score was developed by Fair, Isaac and Company (now known as FICO) in the 1950s, but it wasn’t until 2003 that the Fair and Accurate Credit Transactions Act allowed consumers to order one free credit report from the three major credit bureaus. For a “reasonable fee,” they could add FICO scores to the report.
In 2008, Credit Karma started letting people check their credit scores for free. After creating an account, you can view your scores whenever you want. Although Credit Karma provides an invaluable service, it does have its limitations.
Just how accurate is Credit Karma? Here are three possible limitations to be aware of.
1. Credit Karma uses the Vantage 3.0 scoring model
Before looking at how accurate Credit Karma is, let’s consider what a credit score is. This score gives lenders a picture of your creditworthiness at a glance. It’s a representation of your financial history, based on factors like your debt-to-income ratio, payment history, and credit card usage.
Lenders often rely on a credit score to evaluate you for a new loan or credit card. If your score is low, your application might get rejected. If your score is high, you’ll likely qualify — and get competitive interest rates to boot.
But one person can have multiple credit scores. For one thing, there are three major credit bureaus (TransUnion, Equifax, and Experian), and your financial records at each may be slightly different. That means your credit score based on information from TransUnion might not exactly match the score based on data from Experian.
Plus, credit scores come from different scoring models, including FICO and Vantage 3.0. More than 90% of lenders prefer the FICO scoring model, but Credit Karma uses the Vantage 3.0 scoring model.
“FICO is the most popular credit score used by lenders and creditors,” said Tracy Becker, credit expert and founder of North Shore Advisory Inc. “Although the Vantage 3.0 has the same score range as the FICO score, it is not the same algorithm and can give the viewer a misconception that their score is going to be the same when they apply for most credit.”
According to Becker, it’s important to know which credit score lenders will look at if you’re applying for a new loan.
2. You’ll only see information from two of the three credit bureaus
A second limitation of Credit Karma’s credit reporting is that it shows you information from only two of the three credit bureaus. The credit scores you see are based on data from just TransUnion and Equifax.
If you want to see your credit information from all three credit bureaus, you can order one free annual report from each at AnnualCreditReport.com. This credit report will go over your financial history, but it will not contain your credit score — to add your FICO scores to the report, you’ll pay an additional fee to each credit bureau.SIGN UP FOR MYLENDINGTREE
Chances are, your Vantage 3.0 score from Experian would be similar to the scores Credit Karma brings you from TransUnion and Equifax. This omission isn’t a huge limitation, but it’s worth noting you don’t have all the information.
3. Your credit scores don’t update immediately
Once you sign up for Credit Karma, you’ll get emails prompting you to check your scores every so often. You’ll also get notified if there’s been a major change to your credit score. But you won’t see changes on a daily basis, since Credit Karma updates your scores once a week.
It also might not always have the most up-to-date information from lenders, a fact that personal finance reporter J.R. Duren learned the hard way. “I transferred a $5,000 balance from one card to another,” said Duren. “The transfer was a success, but ended up dropping my Credit Karma scores by nearly 30 points.”