Personal Finance Tool Review: CreditKarma
February 17, 2014Do we place too much emphasis on credit scores in America? Probably, but most of us aren’t completely debt-free. I’ve mentioned before that credit scores are not the “be all and end all” of your financial situation – but your credit score can help you lower the cost of borrowing money. A higher credit score could save you thousands of dollars if you are in the market for a new home or refinancing because scores over 760 typically help you qualify for more competitive interest rates for a mortgage. It is also important to note that routinely checking your credit report can help identify potential risks related to identify theft. It can even be difficult to obtain a job in some careers without a good credit report. In this week’s blog, we will briefly look at a credit monitoring tool called CreditKarma. The Target data breach is just one recent example of the importance of monitoring credit on an ongoing basis. Some financial institutions charge fees for it but CreditKarma does it for free.
Normally, my skepticism radar goes off once the word “free” is thrown around anywhere near my money. There’s always a catch right? Just look at all of those highly-advertised websites with the offer of free credit score. Once you dig into the fine print, you will often notice the majority of them offer a free trial period or require you to provide your credit card information to pay for a monthly or quarterly service.
Checking your credit report and estimating your credit score doesn’t have to be a hassle and it doesn’t have to cost you money. If you want a free copy of your credit report from each of the nationwide credit reporting agencies (Equifax, Experian, and TransUnion) you can visit AnnualCreditReport.com. However, if you want to obtain an estimate of your credit score or sign up for ongoing credit monitoring, you typically have to pay a little extra.
What do I like about CreditKarma? With CreditKarma you can see your TransUnion credit score (TransRisk) for free and you don’t have to use a credit card to sign-up. This is a real positive because AnnualCreditReport.com (which is still a great site to use) and most other sites do not provide you with a credit score unless you pay to see it. CreditKarma also provides you with a “credit report card” that summarizes your credit report into the key categories that factor into the credit scoring system. These factors include credit card utilization, payment history, age of credit history, total accounts, credit inquiries, and derogatory marks. There is an overall grade using the A-F system as well as individual grades in each category. I also like the feature that allows you to identify ways to improve your score. The “Credit Advice Center” has tools and advice to help you simulate how certain actions like closing an old account or paying off balances in full can impact your score.
What is new? During a recent visit, I noticed that CreditKarma now offers free credit monitoring. This has the potential to be a very useful feature that provides automatic updates whenever a significant change occurs on your credit report. This monitoring includes both hard and soft inquiries, personal information updates, new accounts, or late payments that you need to be aware of sooner rather than later. Since many credit monitoring services cost around $15 per month or more, this is an added bonus. Just be sure to go into your member profile to elect credit monitoring (“monitor my credit report and notify me of changes”) under the “Communications and Monitoring” page.
CreditKarma also offers a “My Spending” page that helps you chart your net cash flow if you choose to link accounts and use this particular feature. This appears similar to Mint and its account aggregation process. If you are new to the online budgeting process and don’t already have an account with an account aggregation site like Mint or Personal Capital, this may be worth checking out. Otherwise, you can just use CreditKarma for its strongest features of credit monitoring and estimating your credit score.
What do I not like? There really aren’t too many things I don’t like. The fact that you have to provide your Social Security number isn’t too exciting, but that is the ticket you must punch to get access to your credit. It is a free consumer website so like Mint, they need to generate revenue somehow. That is where the affiliate advertisements come into the picture. You can choose to opt out of special promotions (go to the communication preferences on the sign-up page for this) but there are a lot of offers when you initially log in to the account and CreditKarma recommends various ways to consolidate your credit, apply for rewards cards, refinance or obtain loans. For most people, this can be an effective way to shop around and compare offers from sites like Bankrate or DepositAccounts. If temptation and bad spending habits got you into a debt-related mess in the first place, it may be tough to avoid applying for even more debt.
In summary, monitoring your credit on an ongoing basis is a best practice financial planning behavior. You can always obtain a free copy of your credit report using AnnualCreditReport.com. Now with useful credit monitoring tools available for free through sites like CreditKarma, you can also take the steps to improve your score so that you are in the best credit position possible.