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Credit Karma Doesn't Hurt Your Credit Score, and Here's Why

Oct 04, 2023 By Susan Kelly

A free credit report is available from Equifax, TransUnion, and Experian through the website annualcreditreport.com each year for consumers. Credit Karma offers free weekly updated credit reports from Equifax and TransUnion and free VantageScore 3.0(r) credit scores.

Obtain a free credit report, and FICO score from Experian by visiting the company's website. User signups for credit cards or loans on Credit Karma's site generate revenue. Advertisers who use Credit Karma to promote their products receive leads. Its website explains how it makes money and what information it collects.

Aside from providing debt management tools, Credit Karma helps users keep track of their Credit, plan their budget, manage several loans and automate mundane tasks like amortization.

Using this service, customers can correct inaccuracies on their credit reports, lower their mortgage interest rates, time their debt repayment, and compare interest rates and terms for various loans.

Intuit, which makes TurboTax and other tax preparation software, will purchase Credit Karma in December 2020 for $8.1 billion.

Why Credit Karma Won't Hurt Your Score

Credit Karma makes soft queries when it checks your FICO score on your behalf. In contrast to hard inquiries, which affect your credit ratings, soft inquiries do not. As many as five points per inquiry can be shaved off in a short period by multiple hard inquiries, which can remain on the record for up to two years.

Credit bureaus are more likely to deduct points if a person has a short credit history or only a few accounts. Credit agencies interpret multiple hard inquiries as evidence of a borrower's potential for high-risk behavior... The credit bureaus believe that the person is either desperate for Credit or has been unable to obtain it elsewhere. Multiple hard inquiries are eight times as likely to result in bankruptcy, according to MyFICO, as no bankruptcies on a person's credit report.

Hard Inquiries vs. Soft Inquiries

You're putting in a hard inquiry when you apply for a mortgage, automobile, student, business, personal loan, or credit card. They are also possible when someone wants an increase in their credit limit. Credit scores can be harmed by six or more hard inquiries simultaneously, but one or two hard inquiries every year won't hurt.

On the other hand, a soft inquiry focuses on investigations such as credit checks conducted by businesses that provide products or services, background checks conducted by employers, pre-approvals for credit card offers, and the verification of individual credit scores. It's also possible for companies with which consumers already have accounts to make soft inquiries about their products and services. The majority of the time, no financing choices are being made. They aren't counted against a person's overall score because they are deemed promotional and conditional.

The sort of credit bureau or financial institution that initiates the inquiry will determine whether or not other activities such as applying for rent or car rental, getting a cable or internet account, or having your identification verified will result in either a hard or soft inquiry. Credit Karma requests the information on behalf of its members. Thus a hard query is not performed on the member's credit report.

How Credit Karma Makes Money

Credit Karma's business model There's more to Karma's economic plan than pure altruism. As a for-profit company, it earns revenue through targeted advertising and provides you with a free credit score in exchange for information about your spending habits.

Users of Credit Karma are shown adverts, hoping they will click on them. Credit Karma may receive a commission if you apply for a loan through one of these advertisers who are lenders. Advertisers value your data. Therefore they're willing to spend extra to use it to their advantage. There are currently more than a hundred million registered users.

Other Services Credit Karma Offers

Credit Karma also provides a variety of extra services. Karma may get a hold of TransUnion and Equifax information about you. (Experian is the third.) Based on VantageScore, it will have its ranking. After that, you'll get a copy of your current VantageScore and the credit reports that go along with it.

As an additional service, Credit Karma offers a security monitoring service and notifies you whenever a credit check is performed on you. Not just Credit Karma provides these kinds of warnings and services; several of the greatest credit monitoring firms do.

You can search for customized offers for a credit card, a car loan, or a home loan, and your search won't appear in your credit report on Credit Karma or anyplace else if you submit your personal information. A credit report's "inquiries" portion is a list of lenders who have inquired about your credit history. You can restrict how many credit bureaus can contact you at a time using Credit Karma.

The Bottom Line

Credit Karma, like comparable companies like Credit Sesame and MyFICO, also advertises individualized credit reports, personalized score insights, and free credit monitoring that can help members discover possible identity theft, among other possibilities.

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