On Tuesday afternoon, consumers took to Twitter to express their frustration over their credit scores on Credit Karma, the personal finance company owned by Intuit.
The issue for most wasn't that the credit scores they were finding on the Credit Karma website were low—rather they were too high.
Consumers tweeted about going to apply for a credit card or loan thinking they have good or excellent credit, only to soon find that the credit score that the card issuer or lender pulled was lower than what they saw on Credit Karma.
The specific tweet that started off the conversation can be found here. Twitter users were quick to follow up and joke about how inflated their credit scores looked on Credit Karma.
But they were on to something important when it comes to checking your credit score.
Below, CNBC Select breaks down why you can expect your credit scores to differ, depending on where you check them.
Why your Credit Karma credit score differs
There are multiple reasons why your credit score differs between what a personal finance website tells you and what your credit card company or a prospective lender find.
This is mainly because of two reasons: For one, lenders may pull your credit from different credit bureaus, whether it is Experian, Equifax or TransUnion. Your score can then differ based on what bureau your credit report is pulled from since they don't all receive the same information about your credit accounts. Secondly, different credit score models (and versions) exist across the board.
As it states on its website, Credit Karma uses the VantageScore® 3.0 model. VantageScore may look at the same factors that the other popular FICO scoring model does, such as your payment history, your amounts owed, your length of credit history, your new credit and your credit mix, but each scoring model weighs these factors differently.
For this reason, VantageScore and FICO® Scores tend to vary from one another. Your VantageScore® 3.0 on Credit Karma will likely be different from your FICO Score that lenders often use.
If you plan on applying for credit, make sure to check your FICO Score since there's a good chance lenders will use it to determine your creditworthiness. FICO Scores are used in over 90% of U.S. lending decisions.
Take note of the FICO Score version you look at as well. The FICO® Score 8 is widely-used and can help you gauge which credit cards you qualify for. But there are also industry-specific FICO Scores to use when you are planning a certain purchase. For example, FICO® Auto Scores are ideal if you want to finance a car with an auto loan, while it's good to check FICO® Scores 2, 5 and 4 if you plan tobuy a house. Check out the full list of FICO's score versions for different financial products here.
How to check your FICO Score for free
You canaccess your free FICO® credit score through your bank orcredit card issuer, like American Express, Bank of America or Citi. Online resources like *Experian Boost™ and Discover ScoreCard also provide free access to anyone, regardless if you're a cardholder or not.
*Results may vary. Some may not see improved scores or approval odds. Not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
I've spent a good chunk of time delving into the intricacies of credit scoring, so let me walk you through the concepts laid out in that article.
First off, credit scores are a sensitive topic for many, as evident from the frustrated consumers on Twitter. The article discusses the discrepancies in credit scores reported by Credit Karma compared to those used by lenders. Now, why does this happen?
There are two main reasons, both rooted in the complex world of credit reporting. One, lenders may pull information from different credit bureaus—Experian, Equifax, or TransUnion. These bureaus don't always have the exact same data, leading to variations in the credit scores they generate. It's like comparing apples from different orchards; they might look similar, but there are nuanced differences.
Secondly, and this is a crucial point, different credit score models exist. Credit Karma, as the article highlights, uses the VantageScore® 3.0 model, whereas lenders often rely on the widely recognized FICO® Scores. These models consider similar factors—payment history, amounts owed, length of credit history, new credit, and credit mix—but they weigh these factors differently. It's like having two chefs using the same ingredients but creating distinct dishes.
For someone gearing up to apply for credit, especially a credit card or loan, it's emphasized that checking your FICO Score is crucial. FICO Scores hold sway in over 90% of U.S. lending decisions, making them the go-to reference for lenders assessing your creditworthiness.
Here's where it gets even more nuanced—the FICO Score isn't a monolithic entity. There are different versions tailored for specific purposes. The article mentions the FICO® Score 8, widely used for general credit assessments, and specialized scores like FICO® Auto Scores for car financing or FICO® Scores 2, 5, and 4 for home purchases.
To wrap it up, the article provides some tips on how to access your FICO Score for free. Banks and credit card issuers like American Express or Bank of America often offer this service. Additionally, online resources such as Experian Boost™ and Discover ScoreCard provide free access to your FICO Score, regardless of whether you're a cardholder or not.
So, if you're navigating the labyrinth of credit scores, remember: it's not just about the number; it's about understanding the game being played with different rules by different players.
