Credit Karma has decided to pull a 180 degree turn and truly offer a free credit score as well as a credit monitoring service.  The approach they have taken to make this possible is similar to that of Mint.com and MoneyStrands.com.  Rather than a monthly service fee there are affiliate offers presented based on your demographics/credit situation.

Because I’m a credit score nut and love to have a pulse on my own credit score I decided to give it a try and see what the buzz is about.  It turns out the sign-up process was was a 3 Step process that was extremely simple and straight forward. Start by clicking the “Get Your Free Credit Score” button.

Step 1: Create Your Account – Enter your name, e-mail, a screen name and password.

Step 2: Confirm Your Email Address – After completing step 1 you will receive an email with a verification link to activate your account.  Simply click the link to finish your account setup.

Step 3: Create Your Account – By clicking on the verification link you will be taken to step 3 of the account setup process.  Here you will be required to enter somewhat personal information that allows them to pull your credit report from one of the 3 credit bureaus.   They require a current address, phone number, birthday and social security number.  I think the best part of the whole thing is that the don’t require a credit card.

In less than 5 mintues you’ll have an account setup and access to your current credit score.

After browsing through the site and the different tools available with an open account I saw a number of tools that may be useful. I think it could be a great tool for someone looking for a way to immediately improve their credit score.

However, one of the biggest disadvantages was that you can’t see your actual credit report. They break it down and show you what they think is most important, but I couldn’t find a way to download it myself. Also, I am not sure which credit bureau they requested my report from since I am only allowed one report per bureau per year..(I have already requested one from annualcreditreport.com myself this year).

Call me old fashion, but I think I am going to stick to pulling my credit score myself 3 times a year and doing my own monitoring. I will however, compile a few posts over the next week or so explaining some of the tools available within Credit Karma.

By reducing your credit limit your credit score is negatively affected.  Let me explain.  Let’s say your current credit limit is $5,000 and your carrying a $2,000 balance on your card.  The credit card company worries that your large outstanding balance may increase your default risk so they reduce your credit limit to $2,500.

By reducing your credit limit they have in turn increased a key ratio used to calculate your FICO score.  The ratio they’ve increased is called your credit utilization rate and is found by dividing your current outstanding balance into your total credit limit.  In the above situation your credit utilization rate goes from 40% to 80%.

Thankfully banks and card companies must give you at least 15 days notice when they are changing your terms and conditions, but what they don’t have to do is tell you is that this reduction in your credit limit will negatively affect your credit score.

I think the best way to prevent your credit score from dropping is to pay off your outstanding balance every month.  First off, if you are not carrying an outstanding balance your card company would most likely not consider you high riskand would have no reason to decrease your limit.  Second, even if they were to reduce your limit and you do not carry a balance on your card, your credit utilization rate would remain the same, 0%.

The six months of credit monitoring services (which retails for
$59.75) include: (1) the ability to lock your credit report so third
parties, such as lenders or other companies, will not be able to access
your credit report without your consent (unless allowed by law); (2)
unlimited daily access to your Trans Union credit report and credit
score; and (3) credit monitoring with a 24-hour email credit notification
service. The nine months of enhanced credit monitoring services
(which retails for $115.50) includes all the services listed above, plus
a suite of insurance scores and a mortgage simulator service.

Are you Eligible?
If you have had an open credit account or an open line of credit from a credit grantor (i.e. automobile loans, bank credit cards, department store credit cards, other retail store credit cards, finance company loans, mortgage loans, and student loans) you are eligible. You must register before September 24, 2008.