What's the catch with credit karma
Credit Karma has made a name for itself by offering consumers free credit scores - not just a free trial, but completely free access, no credit card required. (See Why Credit Karma Is Free and How It Makes Money.)
It offers the Vantage 3.0 Score (a model based on a collaboration between the three major credit bureaus) from TransUnion and Equifax. Knowing your score is important because it affects everything from your ability to get a loan, to the mortgage rates you offer, to credit card approvals, even job or apartment applications.
But Credit Karma doesn't just shoot you the three-digit number and leave it at that. The tools on their website are cleverly designed using what psychologists call feedback loops - a key to maintaining motivation as you work towards a goal. You know those gold coins that you hook into a video game? It's a feedback loop. The personalized feedback and information from Credit Karma act as a motivation engine for everyone who wants to improve their score and generally strengthen their finances. Here are five top credit karma tools and what they can do for you, including the feedback you get.
1. Credit Score
Credit Karma members can see their TransUnion and Equifax credit scores on their dashboard when they log in. Each result is updated once a week. Improving these values will give you lower interest rates, a better credit card, or make it easier for you to get a loan or a car.
- The feedback loop: If you take certain actions to improve your score, here are the results for the week.
2. Credit reports
In addition to your score, Credit Karma will provide your complete TransUnion and Equifax credit reports as often as you want. They are also updated weekly; If you choose to use email notification and credit monitoring, you will be notified whenever there is a change in your report. (You may also read Do I Have To Know All Three Of My Credit Scores?)
This is your credit history and regular monitoring of your report can give you the confidence to apply for this mortgage or it can reveal potential problems.
- The feedback loop: In addition to the information, Credit Karma provides advice on issues that need to be addressed: “Using more than 30% of your limit” or “Recently opened [credit card account].” Another important reason to monitor your credit report is to ensure there are no inaccuracies. Did you open this new account? Or is something suspicious going on? After requesting a fix, you can see if it has been created and feel more confident that you are protected from identity theft for the moment.
3. Credit Factors
Credit scores were designed with bankers and statisticians in mind, not the consumer, so the number alone won't tell exactly what to do to improve it. This is where the next tool comes in.
Along with your credit report and your score, you will receive a tailored analysis of six factors that went into the factor. The excellent, good, fair, bad, very bad grades are Credit Karma's, unofficial from the credit bureaus, but they are based on data aggregated by Credit Karma from around 35 million members, what could affect your credit score and how it compares to national averages. With them, you can see how certain actions - positively and negatively - affect your creditworthiness. Here are the factors you can track:
High Impact Factors
- Credit card utilization. The percentage of your credit limit that you use - your total balance divided by your total limits.
- payment history The percentage of payments you made on time for each account shows how reliable you are.
- tradeoffs. Accounts in confiscation, bankruptcy, civil judgments and liens. (These factors all contribute to having a negative credit history.)
Medium Impact Factor
- Age of the credit history. The length of time your credit accounts were open, averaged across all your accounts.
Low Impact Factors:
- total accounts. How many different loans, mortgages, and credit cards are listed on your credit report?
- credit inquiries. Every time you apply for a loan or a credit card, the potential creditor makes a tough request. (Checking your own credit report is a gentle query.) How many of these have there been in the past two years? For more information on this, see Credit Score: Hard Vs. Soft Inquiry.
- The feedback loop: You will see how certain actions can affect your score. Take credit utilization. Perhaps you have exhausted all of your credit cards and are getting a very bad rating. As you pay off your balance, you will see the percentage go down and that level improve, creating a little bit of satisfaction every time. Do it enough and your overall credit score will go up. You'll also get feedback on a more strategic level: maybe you have a first post-college job and just a credit card (as for your overall account grade). You can opt to apply for a second with a regular paycheck knowing you are not using much and will pay off in full each month. Its extra credit limit will lower your usage rate.
4. My expenses
Members who connect their bank accounts and credit cards to Credit Karma can track their expenses over time - resulting in month-to-month comparisons or tracking by transaction type. You will see where your money is going and what you spend the most money on, illustrated in a colorful pie chart. You can also use it to review all your transactions in one place and check for suspicious activity, unexplained charges, or inaccurate charges.
- The feedback loop: Does your output reflect what you keep saying that you are no longer in life? The pie chart can be a reality check. That massive serving of meals that weren't even that memorable could keep your focus on what your real priorities are with the possibility of seeing that vacation margin grow - and feeling very happy with you - over the next month.
Loan Karma offers four financial calculators: one to estimate what home price you can afford, a simple loan calculator, an amortization calculator, and a debt repayment calculator. (A popular credit score simulator that you used to test the effect of various actions on your credit score is being redesigned offline at the moment and expected back "in the near future" in late January 2015.)
- The feedback loop: The calculators what-if scenarios are the ultimate feedback loop that lets you quickly see how long it takes to get rid of a debt or what house you can afford. If you have a 4.8% mortgage, how much equity do you have after 10 years? (Interest is pre-charged on many types of loans.) Is it worth refinancing at 3.3%? What would you gain if you took out a loan to consolidate certain debts?
The bottom line
We all want to improve our finances, but it can be difficult from here. Credit Karma provides vital information with its free credit scores and credit reports. But beyond that, their tools with their feedback loops look like this card's payout increases my score! look at the house I can afford now! - Help consumers educate themselves and motivate them to take positive action for their financial health.
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