With different formulas used by the different credit monitoring services, how does a consumer know the difference between a FICO score, a Vantage score, an Experian Report or Equifax? And what does that mean when you apply for a loan? A recent Cleveland.com story featured a question from an Akron, Ohio man whose credit score was 560, but came back almost 100 points higher from Credit Karma. This may be an isolated case, but it points to the need for monitoring the credit monitoring services. This becomes even more important as Google has recently invested $85 million in the free credit report service Credit Karma.
“They (Credit Karma) show me at 645,” The man from Akron said. “I applied for credit for a home improvement purchase and the denial letter said my score was 560. How can they be 85 points different? This is what makes me suspect they inflate those scores as a “feel good about yourself” maneuver.”
(In an earlier blog post, Cumulus Funding provided the process and details on how credit scores are determined.)
Credit Karma pulls its data from TransUnion, one of three large credit bureaus alongside Experian and Equifax, and then adds its proprietary algorithm to create its reports. The three bureaus each use a different set of information about you and they also have their own ways of preparing that information.
When you, the consumer, look at your Credit Karma score you are not looking at your FICO score or your TransUnion score. You are actually viewing your Vantage Score, a number scored slightly differently than your credit (or “FICO”) score. The Vantage Score is typically a little higher than your FICO score which can cause problems when consumers aren’t aware of the difference. This becomes especially problematic when applying for a loan because most loan companies want your FICO score, not your Vantage Score.
Even though Credit Karma uses a Vantage Score when most companies are still using FICO scores in their evaluations, the Vantage Score can still be very useful. According to a Forbes article, this new formula is used by most auto and home insurers to evaluate how likely their prospective policyholders are to file a claim. And, with their new investment from Google, Credit Karma may be able to disrupt the market and contend with FICO who have reigned supreme since opening in the 1950’s.
The Cleveland.com article noted, “I fear that some (3rd Party credit report services) ding people’s credit histories by counting as a third-party inquiry”.
When you are applying for a loan, it’s always important to ask the lending company pulling your credit report if they will leave a “footprint” on your report. Having too many footprints from lender requests can adversely affect your score. It’s best to have as few inquiries as possible.
Credit Karma customers get a weekly free look at their Vantage Scores. If you have a Discover credit card you may have noticed that your monthly statement includes your credit score. This is free and it is the bonafide FICO score and does not count as a lender request.
Instead of the free 3rd party services such as Credit Karma, you can pay $8 to $10 to purchase a FICO credit score from Equifax. Also worth noting is that if this is request from the consumer will not hurt your credit rating.
Free accounts on Credit Karma are approaching 21 million, up from about 9 million a year ago. The Times reports, “Credit Karma doesn’t store the Social Security numbers required to open an account, but it does create financial profiles of its users to tailor the marketing pitches that bring in most of its revenue. Virtually all of the ads are for credit cards, loans and other financial services”.
As many consumers are aware, Google already uses information from your emails, analyzing your personal data to decide which ads you see. Credit Karma, which has the details of its users’ credit reports, is a potential ad-match made in heaven for Google.