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Is Credit Karma Used in Lending Decisions?

Written by Allison Martin

Allison Martin is a personal finance enthusiast and a passionate entrepreneur. With over a decade of experience, Allison has made a name for herself as a syndicated financial writer. Her articles are published in leading publications, like, Bankrate, The Wall Street Journal, MSN Money, and Investopedia. When she’s not busy creating content, Allison travels nationwide, sharing her knowledge and expertise in financial literacy and entrepreneurship through interactive workshops and programs. She also works as a Certified Financial Education Instructor (CFEI) dedicated to helping people from all walks of life achieve financial freedom and success.

Updated December 18, 2023​

4 min. read​

Did you recently get your credit score from Credit Karma? You may be wondering if it’s accurate or if lenders actually use it to make lending decisions. Or you may have noticed discrepancies in your two scores on Credit Karma.

Although Credit Karma is a free tool that can be beneficial, you should understand how it works and if the credit scores provided are useful.

In this guide, you will learn more about Credit Karma, the credit score it gives to consumers, and what credit score(s) lenders actually use. You will also discover a better alternative to monitor your credit health.

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What Is Credit Karma?

Founded by Kenneth Lin, Credit Karma is a platform that provides free credit reports, scores, and credit monitoring from Equifax and TransUnion to its members. It also features an assortment of financial tools, educational resources, and recommendations to help you meet your financial goals.

Credit Karma partners with credit card issuers, banks, lenders, and insurance companies to extend personalized offers to its members. If you decide to move forward with a recommended product, Credit Karma receives a commission from the bank or lender.

What Credit Score Does Credit Karma Use?

Credit Karma displays your VantageScore 3.0 reports and scores from Equifax and TransUnion. Although a newer model (Vantage 4.0) is now available, the platform uses the older model to make recommendations and personalized offers to its users.

How Accurate is the Credit Karma Score?

The VantageScore on the Credit Karma dashboard is based on data in your Equifax and TransUnion credit reports. However, the scores you get from Credit Karma may differ from the scores potential lenders and creditors see (or what you see on other platforms) for a few reasons.

For starters, not all lenders, creditors, and platforms use the same credit-scoring model. So, if you apply for a car loan and the lender uses the FICO score specific to the auto industry, it could be quite different from your VantageScore 3.0 found on Credit Karma.

Another common reason for variances is how accounts are reported. Not all creditors and lenders report account activity to the three major credit bureaus – Experian, TransUnion, and Equifax. So, your score could differ based on the information present in each report. Errors also cause discrepancies in credit scores and may or may not be present in reports from all three credit bureaus.

To ensure your VantageScore is accurate, review your credit report’s contents and promptly dispute any issues. Otherwise, errors or outdated information could hurt your score.

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Does Credit Karma Affect Your Credit Score?

Each time Credit Karma pulls your credit report and score, it generates a soft inquiry with Equifax and TransUnion. There is no impact on your credit score.

But suppose you decide to apply for a credit card or loan offered through Credit Karma or another lender. In that case, it will likely result in a hard inquiry that can affect your credit score.

VantageScore vs. FICO Scores

Both FICO and VantageScore are credit-scoring models that help lenders determine where your credit health stands and if they should lend to you.

What Is VantageScore?

VantageScore is a credit-scoring model that evolved in 2006 to create more scoring consistency amongst the three credit bureaus. It was developed by Experian, TransUnion, and Equifax and has undergone several iterations over the years. In 2017, the latest model, VantageScore 4.0, was released. However, some lenders and creditors continue to use VantageScore 3.0, which was released in 2013.

The Differences Between FICO and VantageScore

FICO and VantageScores both gauge creditworthiness and the consumer’s ability to repay debt obligations but have fundamental differences.

Here’s how your FICO score is calculated:

  • Payment history: 35%
  • Amounts owed: 30%
  • Length of credit history: 15%
  • Credit mix: 10%
  • New credit: 10%

VantageScore uses the following factors to calculate your VantageScore:

  • Payment history: extremely influential
  • Percentage of credit limit used: highly influential
  • Age and type of credit: highly influential
  • Total balances and debt: moderately influential
  • Available credit: less influential
  • Recent credit behavior and inquiries: less influential

FICO offers both base and industry-specific scores. Base scores predict your ability to repay your debt on time and range from 300 to 850. However, industry-specific scores focus on your ability to repay a specific type of debt, like a mortgage, credit card, or auto loan, and range from 250 to 900. The VantageScore 3.0 and 4.0 also range from 300 to 850, but there are no industry-specific scores.

The credit-scoring models also have different requirements to generate consumer credit scores. FICO requires a tradeline that’s at least six months old and activity on a credit line within this time frame. By contrast, VantageScore only requires an account with one month of credit history.

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What Credit Score Do Lenders Use?

Approximately 90 percent of top lenders use the FICO scoring model to make lending decisions.

Credit Karma Alternatives

Looking for a viable alternative to Credit Karma that provides more than a VantageScore and doesn’t encourage borrowing?

The CreditWorksSM Basic membership from Experian is worth considering. It’s free and includes an assortment of features, like 24/7 credit monitoring of your Experian report, your monthly FICO Score and Experian credit report updates, and real-time alerts any time activity takes place in your credit profile.

You also have the option to view personalized credit card offers you may qualify for if you are in the market for a new card. But if you’d prefer not to borrow to improve your credit health, you can take advantage of Experian Boost to help raise your credit scores. This free tool gives you credit for bills like your utilities, phone, and streaming services to potentially boost your Experian FICO Score right away.

The Bottom Line

Credit Karma can be a valuable resource to monitor your credit health and get an idea of banking, credit, and insurance products you may qualify for. But the platform may encourage borrowing, which could be detrimental to your financial health if you’re already in a tough spot. Plus, the VantageScore may not be useful as it’s not the most widely used to make lending decisions.

By contrast, Experian is a free alternative that offers a ton of valuable resources. It also provides a free FICO score, which is the top choice for lenders. You can also get free credit report updates, along with credit monitoring to help you stay on top of your credit health.

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