Free Credit Scores from Credit Karma: What’s the Catch?

Is Credit Karma safe? By now, most Americans have seen the ads for the highly popular website that promises access to free credit scores. But is Credit Karma a scam? Is it trustworthy? What’s the catch? Is it really free, or is there some hidden agenda?

You may have wondered if the site can be trusted or if there’s something going on behind the scenes that you should know about. To test it out, we created an account at the site and used the free credit scores feature. The verdict? Not only is Credit Karma safe, it provides free access to user credit scores and also brings some powerful additional features to the table. We’ll cover some of them below. We’ll also warn you of a few things to avoid.

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Screen grab from Credit Karma’s website.

Credit Karma is Really Free

Credit Karma shows users free credit scores from two of the three credit reporting bureaus: TransUnion and Equifax.

Some websites offer “free for the first month” deals, then charge $19.99 per month forever after. Credit Karma, however, is one of the good guys. Their free credit score service is really free. They don’t even ask for any payment information they could use at some point down the road to sneak in hidden fees. No credit card numbers, checking account numbers, nothing. Without a credit card or other form of payment in their hip pocket, there’s no way for the site to sneak in hidden fees while users aren’t looking.

Credit Karma free credit score signup

Screen grab of Credit Karma’s simple sign up process. No credit card numbers or other payment info are needed to see free credit scores.

Credit Karma is Not a Scam

Since Credit Karma doesn’t ask for credit card numbers or other bank information, there’s no way it could be used to pilfer money from its users’ accounts. And since it only asks for the last four digits of each person’s social security number and not the full number, the site can’t possibly be used for identity theft. It doesn’t collect any information that could be used for online theft, so consumers can use it without fear.

Note – a reader wrote in on 12/20/15 to say the site does now require a full social security number. While that would be a drawback if true, it’s not a deal breaker. Learn how to keep your social security number safe even when you share it with hospitals, salesmen and yes, even Credit Karma. Read our article on IRS IP PIN numbers here.

credit karma free credit scores social security number

Credit Karma only asks for the last four digits of each user’s social security number.

The one caveat is that the site does collect a user’s name, address, and phone number. Some individuals may worry that this information could be used to conduct identity theft. However, since the info is publicly available in most cases anyway, sharing this information won’t be a worry for most.

Credit Karma is Fairly Safe from Hacking

One worry with online services is that the business will get hacked at some point and a user’s private information will be stolen. Since Credit Karma doesn’t collect account numbers or full social security numbers, even if they’re hacked there’s not much to worry about. The most any potential hacker will walk away with is a user’s name, phone number, email address, and street address. Again, since this is public info anyway, sharing it with Credit Karma doesn’t really increase a person’s risk.

Credit Karma: What’s the Catch?

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Credit Karma shares free credit scores, butmakes its money from the ads it shows to users. Here’s a screenshot of one.

Credit scores cost money. They’re created by three credit reporting bureaus: Equifax, Experian, and TransUnion. Until recently, anyone who wanted a peek at their credit score would have to pay one of those three businesses each time for a look.

How then is Credit Karma able to provide the scores for free? The answer is: ad revenue.

Credit Karma pays the credit bureaus to access consumer credit scores. They then pass those scores on to their users free of charge. In return, their users have to look at ads. It’s not really all that different from how network TV makes money. The programming is free, but viewers have to sit through ads to watch it.

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Another screen grab of ads from Credit Karma’s site. The ads make the free credit scores possible.

Credit Karma’s Ads

Even the ads on Credit are often helpful. They fall into two categories: In-page ads, and “service” ads.

In-Page Ads on Credit Karma

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One of Credit Karma’s in-page ads. Their free credit scores are made possible by ads like this.

Credit Karma’s in-page ads are just the ordinary banner ads you’d see on any site that’s trying to make money. For example, on the home page beneath a user’s credit score, there’s an ad for a credit card geared directly to that user. Credit Karma chooses credit card offers that match a user’s credit score. They also show the odds of being approved for the card in question. It’s a handy service, and by matching cards to a consumer’s credit profile, the site can take a lot of the guesswork out of finding the right card.

“Service” Ads on Credit Karma

These ads are built into the website. For example, the site’s main menu options include “Home,” “My Finances,” “My Recommendations,” “Credit Cards,” “Loans,” and “More.” The first two options lead to the areas of the website that show free credit scores. The last four menu items however, contain ads for credit cards, loans, insurance and other financial products.

credit karma free credit scores menu

Credit Karma’s top menu bar. All the options to the right of “My Finances” lead to “services” that are basically advertisements.

The ads in these “service” sections are actually kind of helpful. For example, the “Credit Cards” area of the site displays a few offers that match the user’s credit score. The site section also lets users browse cards available for those new to credit, those with poor credit, fair credit, good and excellent credit. Each offer comes with a list of pros and cons, like “low annual fee” or “high interest rate.” They each have user ratings. Another handy feature is, the site shows the average credit score required to be approved for each card. It also shows the lowest credit score possible for each card.

There’s a section that displays loan offers and one for insurance offers. Each offer is matched directly to the user’s credit history.

credit karma free credit scores loans

The loans section of Credit Karma’s site. Ad sections like this help pay for the free credit scores.

A Caveat to Credit Karma’s Ads

Consumers should be a little wary of the ads on Credit Karma. While it’s pretty neat that the offers are tailored to match each user’s credit score, the site is, after all, trying to make money. Since that’s their main goal, they don’t always have the customer’s best interest first and foremost.

Ad Warning #1: Average Age of Accounts

credit karma free credit scores age of accounts

Age of accounts matters to the credit score. Note the “Medium Impact” graphic.

Credit Karma may find card offers for its users that they didn’t know about, so that’s a good thing. However, jumping to a different credit card just because it has a lower rate isn’t always the best idea. Why not? Because the average age of a consumer’s credit accounts figures into their credit score.

To illustrate, let’s say someone named Jill has had the same two credit cards for twenty years. She has an excellent credit score of 760. But if Jill finds a lower interest card on Credit Karma and takes advantage of it, her average account age drops by a third. That could be enough to sink her credit score to 740, which in turn would change her credit designation from “excellent” to good.

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Age of accounts, and how they affect the credit score.

Ad Warning #2: Credit Utilization Ratio

Another reason not to be lured in by the ads on Credit Karma is the credit utilization ratio. This is the amount of credit a person has, compared to how much of it they’re using. This is another factor that affects consumer credit scores.

credit karma free credit scores ratio

This screen grab from Credit Karma shows how credit card utilization affects a credit score. However, some of the ads on their site could lead consumers to violate this factor.

The “My Recommendations” section of Credit Karma suggests consolidating credit cards, and tells consumers this will help them. However, consolidating cards is not always the best idea. As an example, someone named Jack has three credit cards, each with a $10,000 limit. Each card has a $2,000 balance. This gives Jack a credit utilization ratio of 20%. But now Jack sees on Credit Karma that he could help his situation by consolidating his accounts. He takes advantage of an offer, gets rid of his three cards, and consolidates his debt into a fourth card. Now Jack has one card with a $10,000 limit and a balance of $6,000. He also has a credit utilization ratio of 60%. This is not good for Jack’s credit score.

credit karma free credit scores card consolidation

Credit Karma ad pitfall example: Note Jack’s poor credit utilization ratio after he takes Credit Karma up on an offer to consolidate his credit card debt.

A Good Approach to Credit Karma’s Ads

The best approach to Credit Karma’s ads is to see them as exactly what they are: ads. As with any ad-based service, the user pays for something they want by looking at the ads. In this case, in exchange for seeing credit card offers, users get to see their credit scores for free.

Credit Karma’s Added Services

The home page at Credit displays what most consumers go there for: free credit scores. By using the “My Finances” tab however, users can get a lot more from this useful site.

The “Factors Impacting Your Scores” Feature

The “Factors Impacting Your Scores” feature lets users drill down and see why their credit score is what it is. This section of the site lets users see their credit utilization ratio, their payment history, derogatory marks, age of credit history, number of accounts and credit inquiries. Each of these factors affects a consumer’s credit score, so this feature can help someone get a handle on the reasons behind their score.

Credit Karma free credit scores factors

In addition to free credit scores, Credit Karma offers other services, like this handy breakdown of the factors impacting a consumer’s credit score. This person has a good credit utilization ratio, but poor number of accounts.

Also, users can drill down even deeper into each of these six factors. For example, clicking on “Credit Utilization Ratio” will let a user see the details making up their credit utilization number.

The “My Spending” Feature

Those who want to dig even deeper into their finances can use Credit Karma’s “My Spending” feature. This option lets people import their banking transaction histories so Credit Karma can help them track and analyze their spending. For example, a user with a CapitalOne credit card can go to CapitalOne’s website, log in to their account and download a transaction history file. When the user then uploads the file to Credit Karma, they can see a breakdown of their spending habits at a glance. Tracking spending in this way can help consumers get a handle on their finances.

credit karma free credit scores track spending

In addition to free credit scores, Credit Karma offers a spending tracking feature.

The Bottom Line

There are a lot of scams and shady websites out there, but Credit Karma isn’t one of them. Since users don’t have to enter full social security numbers or credit card numbers to see their credit scores, the site couldn’t steal the information if they wanted to.

All things considered, it’s a great site. If you don’t mind seeing a few banner ads, it really provides a lot of value at a pretty low level of risk.