Having a good credit score is a core part of a worthy financial portfolio. But to be honest, sometimes I think we focus too much on that number to the point where it gets obsessive. The reason I say this is because your credit score is usually telling story about your overall financial picture.
Long term, I think it is much healthier to look at the underlying issues (money management breakdowns) rather than to just try and treat the resulting symptom (your credit score). However, I understand how important it is to have access to credit when you need it. For example, you may want to settle down in your first home, buy an investment property, or maybe even get a new car. All of which would be easier with a good credit score.
In this article I want to introduce you to one of my favorite tools for monitoring your credit and the direction of your credit score. It’s called CreditKarma.
Credit Karma has been on the scene since 2007 giving people access to free credit scores.
If you read our full article on building your credit (if you haven’t, do it!!) you know there are so many types of credit scores and Credit Karma gives you what is called a Vantage 3.0 score. And to be honest, I’m kinda feeling the Vantage 3.0 scores because it does not count paid collections. #win
According to their website, this is what Credit Karma has to offer:
Our previous article on improving your credit went into detail about the five different components of your credit score. One of my favorite things about the Credit Karma tool is that it shows you how you’re doing in these areas so that you can clearly see what is impacting your score the most, and then act accordingly.
You can play around in Credit Karma to see how hypothetical changes would impact your score. The goal is to get/keep each category in the green, so let’s talk about how you might use this tool to do that.
Credit Card Utilization: Let’s say you’re planning a $700 vacation with the girls. Since you don’t have any extra cash, your plan is to put it on your credit card and pay it over 4 months. Well, before you do that, see what credit karma has to say. Increase your debt by $700 and see what that does to your credit score.
Or, let’s say your credit utilization isn’t looking too good This means that you are using too much of your available credit. Well, see what would happen if you paid some off. If you’re in the yellow, look to see how much you could pay off to get that category in the green. Maybe a requesting a credit limit increase is in order.
Or maybe you only have 1 credit card. What would happen if you opened another? Perhaps you would be benefit from a different type of credit line, like one that has a fixed monthly rate. Would you score move up or down?
So, is Credit Karma a useful tool? I think so.
But… there’s a but. Credit Karma makes money through their advertisements. Nothing wrong with that. Just make sure that you don’t go taking advantage of offers that you don’t need.
I recommend using credit karma to keep track of what is happening with your credit. Especially directionally. Since all credit scoring models are different, the score itself is not super useful, but seeing how your credit score moves month to month gives you an idea of how you are doing.
Try it for yourself and let me know what you think.