You’re looking to buy a new car, and, of course, the car salesman asks to run a report on your credit score. Maybe you want to open a new credit line at your favorite department store, or you want to take a loan out to pay for school. At some point, we’ve all reached this inevitable time in our lives when that number could make or break us. So, how do we know if our credit is even good enough? That’s where tools such as Credit Karma come in. Twitter users went online to joke about Credit Karma’s credit score inaccuracies, and the discussion turned viral. Yes, it is the quickest way to check your credit score, but how accurate is it really?
The credit bureaus and different scoring models
First, let’s talk about the three individual credit bureaus — Equifax, Experian and TransUnion. Each of these entities gathers information based on different scoring models, making it difficult to generate a single, exact score.
Then, we have Credit Karma that specifically uses score models from VantageScore. (Most other credit markets use FICO.) To get a better idea, FICO score factors are highly dependent on payment history and total amount of debt owed. On the other hand, VantageScore looks at payment history, age, type of credit and the percentage of credit limit used.
So, a majority of lending companies use FICO’s numbers, and a credit expert confirmed its scores are used in 90% of lending decisions. Similar or not, VantageScore holds an advantage: Consumers can access this number for free, unlike FICO, which requires you to pay a fee.
The accuracy of Credit Karma’s scores
Turns out, lenders may be looking at an entirely different score than what we see on Credit Karma. Ultimately, Credit Karma’s use of a differing score model doesn’t necessarily mean it’s inaccurate, it just means it will be different. This has more to do with the algorithm generating a different credit score rather than inaccuracy.
It boils down to whether you will pay for a FICO credit score report or simply access Credit Karma’s free report. Either way, it truly depends on who you’re borrowing from and what that lender decides to use. If the score happens to match the lender’s exact number, blame it on pure luck.
To read more on credit scores and other credit misconceptions, check this out.