Your Credit Karma Credit Score Could Be Wrong

Americans pretty much everywhere agree that this country’s credit reporting system is essentially impenetrable. In an attempt to help, nearly two decades ago, Congress declared consumers have the right to receive a free copy of their credit reports each year (via But what we’re not allowed to see are the actual grades derived from those reports – it’s the equivalent of going over our homework without a grade at the top.

These reports are compiled by the three major credit bureaus: Experian, TransUnion, and Equifax. But credit scores are calculated by a different set of companies, using models each claims to improve. An entire industry has emerged in an attempt to bridge this gap, full of companies promising not only to give consumers access to the scores lenders rely on, but also to give personalized financial advice that will help boost those scores. .

However, a new review of these services by Consumer Reports suggests otherwise. Looking at five of the biggest apps that provide this service (Credit Karma, Experian Credit Report, Credit Sesame, myFICO, and TransUnion: Score & Report), the report argues that the scores they give you aren’t very useful – and worse. Again. , that many of them regularly solicit customers for additional credit or to purchase new financial services which, as Consumer Reports puts it, “are not necessarily in the best interests of users.”

He notes that Credit Karma, Credit Sesame, Experian, and TransUnion only give clients access to one credit score, and it’s unlikely to be the one lenders are looking at. Partly because, as even Credit Karma acknowledged Fast business, “There are dozens, if not hundreds, of scoring models.” The one chosen by Credit Karma, Credit Sesame and TransUnion is called VantageScore. The scores of its rival, FICO, have been around the longest and are considered the industry standard, which, according to Consumer Reports, means that someone else’s numbers are “unlikely to be the scores that lenders use to make loan decisions.

But that can’t illustrate the larger problem of how incredibly patchwork the system is. Are you applying for a mortgage? Lenders will almost certainly look at your classic FICO score. (This is the only model that gets the seal of approval from the Federal Housing Finance Agency, or FHFA – so far.) Apply for a car loan? There are industry specific scores for auto lenders formulated to better predict your likelihood of paying off a car loan on time. FICO does, and so does TransUnion, even though their app uses VantageScore. In fact, it offers auto lenders not a but of them scores: the TransUnion Auto score and the TransUnion CreditVision Auto score.

(Meanwhile, the Experian app uses FICO, but a single score – FICO 8, the most generic possible – significantly reduces its use. Only the myFICO app gives users access to all of their FICO scores, but it gives them access to all of their FICO scores. bill $ 24.99 per month.)

The irony is that while FICO scores attract banks and other lenders, VantageScore was created by all three credit bureaus after critics argued that FICO’s scoring model could do more to include marginalized communities and communities. ‘other “invisible credits,” thereby bridging America’s racial wealth gap. In a statement to Fast business, Credit Sesame said its use of VantageScore was aimed at initiating a transition to a more inclusive financial services industry. VantageScore “offers credit scores to a wider range of consumers,” a spokesperson told us, including those who are “viewed as” not notable “by other models – consumers new to credit, have poor credit records or are invisible in credit matters “.

TransUnion also quibbled with Consumer Reports’ suggestion that lenders rarely use VantageScore. Millions of loans are taken out each year using it, a spokesperson said, adding: “Nine of the ten largest US banks and one-third of the largest credit unions all use VantageScore to make lending decisions for some. of their products. ” The company also said that since the start of the pandemic, it has been making credit reports free every week to anyone who wants one, going beyond the once-a-year law.

However, this sort of undermines the explanation of these companies as to why it doesn’t matter that fewer lenders are using VantageScore. “What’s important is that credit scores are highly correlative,” a Credit Karma spokesperson told us. “This means that if you are rated ‘good’ on one scoring model, you most likely have a ‘good’ credit rating on all other models. ” Still . . . Was the FICO model so flawed that VantageScore had to be created?

Consumer Reports says the hardest pill to swallow is that in order to get that maybe not useful score in the first place, you have to give these companies something very useful to them: your data. These apps all partner to varying degrees with outside companies as their business models depend on it (most notably Credit Karma, which is now run by Intuit and was designed to make credit scores free).

Either way, affiliates interested in this particular customer base tend to be lenders, insurance companies, and financial service providers. Consumer Reports argues that this means that people who try to be more tax prudent could find themselves bombarded with offers that don’t help – and could even hurt – their financial situation, and this technically comes from a app they downloaded to improve their credit rating. .

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