You may have seen a lot of television ads recently for Credit Karma. The site is aiming to be the Mint.com of credit scores. And, that’s a great idea. They’ve gotten venture-backing and have used it to fill the airwaves. They also have a lot of deals landed already, for example, Sears Credit Card holders get their “free credit score” from Credit Karma.
What makes Credit Karma different from other “free credit score” providers is that it’s, in fact, really free. Other companies give you a free credit score in exchange for long-term monitoring services… which you have to remember to cancel within 14 or 30 days (typically).
But, there’s always a catch, isn’t there? Well, yes, with Credit Karma there is a catch too. They don’t provide you with a FICO credit score. They provide a TransUnion TransRisk credit score. You’ll note that there is very little, if any, documentation on the web for TransRisk from TransUnion directly.
TransUnion is one of the three credit reporting bureaus, in addition to Experian and Equifax. All three credit bureaus, taking advantage of changes in credit reporting laws, now have rolled out their own credit scoring systems. These all have the same basic idea, to score your credit history and other personal factors, in order to generate something that rates your risk to financial institutions.
The problem? Nobody uses these scores. Well, almost nobody.
Just about everyone, from your mortgage lender, to the bank that gave you your car loan, odds are, still uses FICO as their base credit score. They may consider things in addition to FICO, but FICO is what they use.
FICO was developed by Fair Issac corporation, in an era where credit reporting agencies were limited to securely reporting your data, and not sharing scores or other formulas with other institutions. And, FICO works… it works really well, in determining people’s credit risk.
Unfortunately, credit reporting bureaus are starting to flex their muscle. Experian for example, won’t allow Fair Issac to sell you a FICO score report anymore from their records. Equifax and TransUnion still do.
You actually still can get your FICO score from Experian. Federal law requires banks and other institutions to notify you of your FICO score if they use it in determining your approval for a loan or other financial product. So, simply apply for one and find out!
So now that you know that FICO is what banks and other institutions generally use exclusively, why would a “TransRisk” score be worth much, if anything? Exactly. That’s why Credit Karma offers it so freely. TransUnion knows it doesn’t help consumers, like knowing their FICO score would.
We don’t know what factors affect TransRisk as much as we do FICO, either. For example, FICO penalizes you for having active balances on multiple credit cards. Having a $1,000 balance on five credit cards is worse than having a $5,000 balance on one credit card. Same for TransRisk? We don’t know. So, trying to boost your TransRisk/CreditKarma.com score, may not help you get that new car.
Am I saying don’t use CreditKarma.com? No. Just be sure to pay more attention to your FICO scores, because they matter more. Know what FICO measures, and how you can tweak your financial life to have the best FICO scores possible.
Pretty sure you meant “bureau” instead of “union” in paragraph 4.
Comparing the FICO Score that I paid for and TransRisk Score from CreditKarma there was only a 5 point favor. FICO was 5 points higher than the TransRisk number. It;s not all bad and keeping a watch on the score on CreditKarma does keep you informed.
While it’s true the Transrisk score is sort of pointless, I wouldn’t dismiss Credit Karma just yet. I use it all the time, because it does track what would go on your credit report. It’s a nice, free, easy tool. I like it because I can see the hard inquiries, new accounts, things like that. It’s nice to be able to see that information so quickly. This isn’t a speel, I found your post trying to figure out just what a Transrisk score is, haha.
To be clear, I meant to emphasize in the conclusion of my post that CreditKarma does have benefits. It can show people pending events/changes to their credit profile, and give a general guidance on how events will impact your credit profile.
But if you just rely on the score as a credit grade, you’re doing it all wrong. It cannot replace FICO, and despite their advertising, shouldn’t replace it.
I am 6 years into the auto industry as a Finance Manager and while yes most national programs are FICO driven, We mainly use Transunion when it comes to rates that consumers will and will not qualify for…
I wish there was some more information on how the TransRisk score was calculated.
I never knew this and at 70 it was a difficult lesson. went through cancer treatment and could not work. Three credit card companies would not work with me on payment so credit score went down drastically. Accounts were closed and bad remarks showed up. After back on my feet I worked so hard to repair. I used Credit Karma and looked at it almost daily. I moved and sold everything to do this to be close to family. Credit Karma scores showed an unbelievable 811 on both of their scores so I was positive I could get a used car to get work again. To my shock the dealer said no because my score was 650!! That’s when I found out about FICO. Consequently unless I save enough to buy a dependable car outright… I can’t work. Also by applying at the car dealer… my personal info including social number went to at least 11 loan agencies throught the US and all hard entries on my report that take 10 years to remove.
If there’s some good news for you Pam, the way FICO works multiple inquiries within a seven-day period only count as one inquiry.
This is because of the very scenario you were in… a car dealership sending out multiple credit inquiries on your behalf, that were really to obtain just one new line of credit or account.
So while you may have 11 inquiries on your report, because they all happened within the same one week… FICO only counts it as a single non-personal inquiry.
This is why when you do decide to go for another car loan or credit account, you should quote as many banks/lenders as possible, in as short of a time as possible.
That does not make sense. When I went to get a new car, every single lender they put an inquiry with showed up as a separate inquiry on my credit report…..Leaving me with a whopping 9 Because they blasted it out there. Now I’ve had to get a lawyer involved to get those marks off my credit. It’s awful.
You’re confusing your credit report with your credit score. Your credit report may have nine inquiries – but your FICO score will only count it as a single inquiry if all of those separate inquiries occurred within a seven day period.
I think hiring a lawyer to approach this is, frankly, a waste of money. This does not have a major impact on your FICO score. And frankly, the dealership and credit reporting bureau were within their rights. You agreed to let them run your credit, and your FICO score will only reflect a single hard inquiry.
Christoper, thanks for a great read.
Any advice on how to ascertain my FICO score?
Of course, I’d prefer getting it for free 😉
I’m in Canada.
I’ve tried Googling and have come up empty.
FICO is designed to work for US citizens primarily. If you are not one, it can be difficult as FICO doesn’t work properly without a SSN. As a fallback it will work if you have an ITIN instead, and use it with all your accounts.
A lot of US banks offer free FICO scores now with their accounts each month. You may want to enroll in a US-based bank account that offers free FICO scores.
My karma score is 635 versus my FICO score of 599 why the big difference?
As this article tries to dive into, the two scores are using completely different standards. Credit Karma’s range and skew is designed to mimic FICO without infringing on their copyrights and patents – some guesswork, some major differences.
This is why Suze Orman called credit score tools like Credit Karma “FAKO” – admittedly, while she endorsed and sold true FICO score products herself.
Nobody should use Credit Karma as a free FICO score. The two things are just plain different standards.
Credit Karma can hurt your score by reporting your credit cards to the 3 bureau before your card is reported by the card company on your closing date
I have a discovery card that is due on the 5th of every month and statement close on the 10 th of each month
I received a email update on the 3rd from credit karma that my score had changed when I login to credit karma it said my discovery card had reported and my balance had increased I callled discovery and asked them why did they report off cycle the said we only report after your closing date and I should check with the credit bureau when I called Experian they said it was reported and I asked by who they said credit karma this made my score drop points because it increased my ratios of what I had to spend when I called discovery back and said credit karma did it they didn’t sound shock I looked for a contact number for credit karma there is no contact number the only way to cancel is to google how to cancel credit karma then it sends you to credit karma page
This will hurt your score they also reported my student loans if they report in between your account cycle and you have a balance it will drop your FICO