Have you heard the rumours?
Apparently, Credit Karma’s scores can sometimes be a little off.
Or a lot off.
The rumours are true.
Many people who rely on Credit Karma to keep track of their credit ratings have discovered discrepancies in varying degrees between their Credit Karma score and their FICA score.
But that doesn’t mean that Credit Karma is a dodgy company, far from it.
So, how accurate is Credit Karma?
And can they be trusted to give you accurate credit scores?
Let’s dive right in and find out.
How accurate is Credit Karma in 2020?
If you’re one of the 50 million people using Credit Karma the good news is there’s no need to panic!
Credit Karma is very accurate and totally trustworthy.
The main issue causing the discrepancies is the fact that Credit Karma and FICO use slightly different methods of calculating your credit score.
Let me explain.
There are 2 main models used in the financial industry to determine a persons credit score.
The first is the FICO model.
The Fico Model is a well established and long-standing method (it’s been going since 1989).
FICO is the model that most lenders use and the one that most Americans are familiar with.
The second model is called The VantageScore model.
The VantageScore method was introduced in 2006 and is widely used by many credit service providers.
The fact that both these models are widely used across America is what is causing so much confusion when it comes to credit scores.
You may have noticed that the Fico and VantageScore models are very similar.
In fact, both models use the exact same range of between 300 and 850.
They also use a very similar set of factors to determine your credit scores such as payment history, age and type of credit, and use of credit and current balances.
However, the emphasis or weight that each model puts on these core criteria is different.
Here are the key differences which can help to explain why so many people are discovering that their credit scores don’t match up:
- Payment history accounts for 40% of your total score in the VantageScore model. Under Fico, this figure is only 35%.
- When it comes to calculating the age of your accounts – Fico counts your closed credit accounts for 10 years whereas VantageScore does not consider closed accounts at all.
This can make a huge difference to the credit scores of serial credit card users.
- How you use and manage your existing credit counts for 20% of your VantageScore and 30% of your FICO score.
This means that if you consistently max out credit cards, your Fico score will be negatively impacted more than your VantageScore will.
- All individual credit applications and inquiries made in a 14 day period count towards your VantageScore, however, FICO counts multiple inquires of the same type as one for a period of 45 days.
This means that the more lenders you have approached the more you will be penalised under the VantageScore model.
As you can see, both methods are accurate, but because they differ in terms of how they break down the individual criteria used to determine a person’s score, many people have assumed (wrongly) that Credit Karma’s scores are inaccurate.
Credit karma score vs actual score.
So, when we talk about the differences in credit scores, what we are actually noticing is the difference between our Credit Karma score (or VantageScore) vs our FICO score.
The diagram below shows the percentage of people that fall into each of the status categories under both models:
As you can see, under FICO, 20% of people are classified in the highest possible bracket and to reach that bracket you need a score of 800 or above.
In contrast, the VantageScore method classifies 30% of all people in the highest tier, and you only need a score of 750 to qualify.
Therefore, more people have a better chance of acceptance (and can get a better deal) under the VantageScore system (at least at the top end of the scale).
What these 2 charts highlight is the importance of familiarizing yourself with both systems.
It’s a good idea to know your VantageScore as well as your FICO score and to do a bit of digging to find out which system your lender uses so that you can maximise your chances of being accepted for credit.
How many points is Credit Karma off?
So, we have established that your Credit Karma score is probably going to be different from your FICO Score.
But by how much?
Well, the difference between your VantageScore (what Credit Karma use) and your FICO score (what a lot of financial institutions use) will depend largely on your individual circumstances.
However, a 20 to 25-point difference between the Credit Karma and Fico scores is common.
Some people have noticed much bigger discrepancies though, so it’s always a good idea to check both your VantageScore and your FICO score.
Final thoughts: is credit karma safe?
Many people have voiced their doubts about whether Credit Karma can be trusted.
People are wary of Credit Karma for 2 reasons.
The first is that the company provides its services (including its app) for free, causing people to be concerned that they are just after your data.
These accusations are unfounded and can perhaps be put down to paranoia (which is understandable given that Credit Karma is dealing with some of our most sensitive data).
The second reason is that Credit Karma’s adoption of the VantageScore system has led to the misconception that their figures are not accurate.
Credit Karma is a San Francisco-based company that has become well established in the financial services industry since 2007.
The system that they use to calculate credit scores is used by many of the major financial institutions, credit card issuers and by top auto and mortgage lenders.
Hopefully, it should now be clear to you that Credit Karma is a totally trustworthy company that is completely safe for you to use.
Let us know about your experience with credit karma in the comments below.