How Accurate is Credit Karma?

Founded in 2007, Credit Karma is a San Francisco-based financial services company that offers free credit scores to the masses. Credit Karma touts that it will always be free to the consumers who use its website or mobile app.

But how accurate is Credit Karma? In some cases, as seen in an example below, Credit Karma may be off by 20 to 25 points.

On this page:

• Comparing Nate’s Credit Scores on Credit Karma vs. Wells Fargo
• Types of Credit Scores Available
• Breaking Down FICO and VantageScore
• Other Differences to Recognize

Comparing Nate’s Credit Scores on Credit Karma vs. Wells Fargo

As an example, we experimented to see how accurate Credit Karma’s scores were for our Co-founder, Nate Matherson. Here is a screenshot from Nate’s Credit Karma account:

Also on July 9th, 2019, Nate applied for a personal line of credit from Wells Fargo. Here is a screenshot from Nate’s Wells Fargo loan application:

As you can see in the examples above, Nate’s Experian FICO Score 9 was 25 points higher than his VantageScore from Transunion and 20 points higher than his VantageScore from Equifax.

In Nate’s case, Credit Karma was accurate enough to say that he had an excellent credit score, but wasn’t perfect.

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Types of Credit Scores Available

In the world of consumer credit, there are several different credit scores that may be used by creditors to evaluate the risk of a new borrower.

Regardless of the type used, information like an individual’s account payment history, number of accounts open and used, credit utilization percentage, and any negative credit issues are all included in the calculation of one’s credit score.

An in-depth algorithm is applied to these details to derive a three-digit number ranging from 300 to 850, in most cases. The higher the credit score, the more sound a borrower the individual is perceived to be when a new application for credit is submitted.

While Credit Karma boasts its free credit score to anyone who wants it, the company provides access to an individual’s VantageScore 3.0, not the FICO Score that the majority of lenders use to evaluate an individual. The VantageScore 3.0 has the same credit score range as FICO and uses some of the same information a FICO Score does, but the way in which the information is used to determine one’s credit score is different.

When Credit Karma users see their credit score details on the site or the mobile app, they are viewing their VantageScore 3.0.

In addition to using a different type of credit score than most lenders and financial institutions, Credit Karma also offers access to only two credit scores from two of the credit reporting agencies.

Currently, Credit Karma allows users to see their Equifax VantageScore 3.0 and their TransUnion VantageScore 3.0 – not a credit score of any kind from Experian. Given that the three credit reporting agencies all offer credit scores to individual consumers, missing the third may mean Credit Karma users are getting a slightly inaccurate picture of their credit profile.

Breaking Down FICO and VantageScore

When most people think about their credit score, whether they know it or not, they are thinking about FICO. The Fair Isaac Corporation introduced FICO credit scores for consumers back in 1989, and since then the company has worked diligently to keep up with consumer behaviors and how those impact the FICO scoring calculations. Up until a decade ago, FICO was the only consumer credit score used by the three major credit reporting agencies, as well as the only score used by lenders and financial institutions.

In recent years, VantageScore has taken on the challenge of competing with FICO for its place at the top of the consumer credit scoring chain. By partnering with the three credit bureaus, VantageScore is able to use similar information and scoring models as FICO to generate individual credit scores. However, there are differences between FICO and VantageScore that consumers should be aware of.

First, it is important to understand that both the FICO and VantageScore methods draw from the same consumer information: payment history, credit usage, recent inquiries, length of credit, and type of credit. However, these details are gathered in different ways.

FICO bases its scoring on the credit reports of millions of consumers at a time, received directly from the three credit bureaus to create the most accurate scoring. VantageScore, on the other hand, uses consumer credit files in smaller sets to create its formula for scoring. Both end up with a score range of 300 to 850, but that’s where most of the similarities end.

VantageScore is more beneficial to consumers with a short credit history, as its scoring model only requires one month of activity and one account reported to the credit bureaus to create a score. FICO, conversely, requires at least six months of credit history and one account reported. This means, at least initially, a VantageScore may be far higher than a FICO score for the same individual.

Similarly, VantageScore and FICO have a difference of opinion when it comes to late payments. For FICO score calculations, payment history makes up 35 percent, although all late payments are viewed in the same way. VantageScore calculations penalize late mortgage payments more harshly than other credit accounts, dropping an individual’s VantageScore down more so than their FICO score.

Overall, viewing one’s credit score on Credit Karma may produce a different result than viewing it through one or more of the credit bureaus directly. The slight differences in calculations between VantageScore and FICO credit scores can lead to significant variations in scores, making Credit Karma less accurate than most may appreciate.

Other Differences to Recognize

In addition to differences between VantageScore and FICO credit score calculations, each major player in the consumer credit scoring market has had several versions designed and implemented over the years. FICO has developed no less than 56 versions of its credit score – one for each of the three major credit bureaus along with one for each specific industry that may use it.

For instance, auto loan lenders have an Auto Score available from FICO that uses the same credit information to determine specific risk factors a borrower may show as it relates to defaulting on a new car loan. The same is true for credit card issuers (FICO Bankcard Score), mortgage lenders, and general credit inquiries.

While VantageScore does not have as many iterations of its credit scoring model, there are at least two versions still in use today by consumers and some lenders. The differences between these credit scoring versions might be subtle, but the details used to calculate an individual’s credit score are varied enough to create multiple scores for a single person at any given time.

The idea of having several different credit scores out there in the world can be a bit overwhelming. Fortunately, a tool like Credit Karma keeps the process of monitoring VantageScore credit scores from Equifax and TransUnion fairly straightforward. It is, however, important for consumers to take the time (and nominal cost) to also review their FICO credit scores from each of the three major credit bureaus every now and again. This ensures there are no major discrepancies, and that scores are in the healthiest possible range.