Where You Can Get Free Credit Reports 

When it comes to checking your credit reports and scores, you have many options. By law, you’re entitled to a free credit report, once every 12 months, from each credit bureau. 

For the three major credit bureaus (Equifax, Experian and TransUnion), you can order these reports through the Annual Credit Report website. If you’re reading this article before April 2021, then free reports from Annual Credit Report are available every single week.     

Of course, you might instead use a paid credit monitoring service like PrivacyGuard or Identity IQ. Perhaps your bank or credit card company offers free credit reports and scores. That’s the case with Chase, Bank of America, Discover, Capital One and many others. With some of these services, you don’t even need to be a customer of the bank or credit card issuer, to check your free credit reports and scores. 

There are many free credit report and score websites, which aren’t affiliated with any bank or credit card company. These include Experian, Credit Sesame, Mint,and Lending Tree.

How Credit Karma Works 

Of course, you’ve probably noticed that I did not mention Credit Karma. Credit Karma is perhaps the best known free credit reporting website out there. As of 2018, Credit Karma had more than 85 million members in the United States, and is particularly popular amongst Millenials and members of Generation Z.

Credit Karma offers free Equifax and TransUnion credit reports, updated as often as once per week. Credit Karma provides you with your VantageScore credit scores. 

Credit Karma breaks down your credit reports in a very simple way. It categorizes credit accounts by the type of account. 

For example, all of your credit cards will be listed in one section, with open accounts first, followed by closed accounts. Next, you’ll find your student loans, auto loans, mortgages, and so on.

Each account will display some basic payment history (i.e. whether you paid on time or late), as well as the date the account was opened (and closed), the name of the lender, and the balance owed. You’ll also see a button to dispute the account – if you believe that the account is somehow being reported inaccurately.

There is also a section for collections accounts, as well as for court records (if you filed bankruptcy). Other negative credit items, such as a late payment, or an auto repossession, will appear under the account where the event happened. 

For example, if you paid late on a credit card, you’ll go to the section of Credit Karma dedicated to credit cards, and see the late payment under that specific card. If your car was repossessed by your auto lender, that will be listed under the loan itself.

Lastly, Credit Karma displays your credit inquiries. Remember, inquiries fall into two categories: Hard inquiries and soft inquiries. Hard credit inquiries (when you apply for credit, let’s say a credit card or mortgage) impact your credit score, while soft inquiries don’t affect your score at all.

The Advantages Of Credit Karma

Credit Karma offers several powerful advantages. First, it let’s you check multiple credit reports (Equifax and TransUnion) in a simple, consistent way. Credit Karma has a great mobile app, so you can take a look at your credit reports on the go. The first step to improving your credit score is understanding exactly where you stand, and Credit Karma makes this possible.

Credit Karma also offers suggestions on how to improve your credit score, some of which can be quite useful. For example, if you have high credit card balances, Credit Karma might offer advice on paying down debt. If you need to build more credit, Credit Karma can offer advice on that as well.

Credit Karma also makes shopping for credit cards and loans much easier. Since they already know your credit score, they can offer products which you might qualify for, along with the chances that you’ll be approved for that product. This can help you avoid unnecessary credit inquiries, by avoiding credit cards or loans which you don’t qualify for.

The Drawbacks of Credit Karma

While there are a number of things we like about Credit Karma, there are also some real disadvantages as well. These are things to keep in mind, when using Credit Karma, and considering the recommendations you’re being offered.

How Credit Karma Makes Money 

First, it is important that you understand how Credit Karma is compensated. Credit Karma makes money through it’s offers for credit cards and loans. Whenever you apply for (and are approved) for a credit card or loan, Credit Karma recieves compensation from the lender. With tens of millions of members, at least some of whom will apply for cards and loans each year, it’s not hard to see how Credit Karma is so profitable. Since Credit Karma knows your credit profile, they’re able to show you offers which are relevant to you. 

While that is great for them, it also has implications for you. Credit Karma has an incentive to show you credit cards or loans, even if those are not neccessarily the best options for you. Therefore, you want to be careful, when applying for (and accepting) offers through Credit Karma.

Disputing Through Credit Karma 

Credit Karma also has a dispute tool, which allows you to challenge negative items on your credit reports. There are several issues with this feature. 

First, it is designed for the convenience of the credit bureaus. It offers a limited number of reasons to dispute each account, and does not allow you to demand a more complete investigation.     

Also, when you dispute online, you might be waiving some of your legal rights, under the Fair Credit Reporting Act. Obviously, you want to avoid that.

For these reasons, you should avoid using Credit Karma’s dispute features – or, for that matter, any online disputing tools. If you want to dispute information on your credit reports, consider using certified mail instead. 

FICO vs. VantageScore 

The VantageScore credit scoring model, which Credit Karma offers, isn’t widely used by lenders. VantageScore was created by the three credit bureaus, working together. 

Most lenders, however, use some version of FICO. There are specialized versions of FICO for mortgages, auto loans, and other sorts of financial transactions. You can get your FICO scores for free through Discover (you don’t have to be a customer) and Experian (more on that later).

The VantageScore can vary considerably from FICO – and this creates confusion. In some cases, your VantageScore is far higher than your FICO score, and when you apply for credit, you’ll be in for a rude shock. This is especially common when shopping for a mortgage. 

In other instances (this is less common), your VantageScore might be way lower than your FICO score. This could cause you to hold off on applying for credit, when in fact you’re already qualified.

Thus, you can’t put too much stock in your VantageScore. It’s an interesting thing to know, and not much more.

A Note On Experian 

Credit Karma only offers Equifax and TransUnion credit reports. As you may know, there’s another major credit bureau – Experian. Experian credit reports play a vital role in millions of lending decisions every year. 

You can check your Experian credit reports (and FICO scores) for free, by visiting Experian.com. If you’re going to use Credit Karma, you should definitely make sure you’re also checking Experian.

There are debt collectors who only report information to Experian, and if you’re not checking those reports, you’ll be unaware of the serious damage being inflicted on your credit reports. Also, given that VantageScore is not used by most lenders, it makes sense to check your FICO scores, with at least one credit bureau.

Our Recommendation

As you can see, Credit Karma offers some excellent benefits – but is also far from perfect. We believe it is important that you check your Equifax and TransUnion credit reports correctly. Therefore, you should check Credit Karma every month, and keep a close eye on your credit accounts.

However, you should take the credit scores offered on there with a grain of salt. Remember that loan and credit card suggestions from Credit Karma can be colored by the reality that the company recieves compensation. Never dispute negative credit items on Credit Karma (or any other online platform). And lastly, make sure you’re checking your Experian credit reports as well.

If you follow these strategies, you’ll be able to improve and manage your credit scores very effectively. You can do it.