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The Credit Karma App: A Way to Manage and Protect Your Credit Score

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Jason R. Rich explains what the Credit Karma app is and how it works. You learn why you should use this app to help manage your credit rating; protect your credit scores; and keep track of your credit reports that are compiled by Experian, Equifax, and TransUnion.

Every consumer in the United States has a credit rating that's compiled and tracked by three independent credit reporting agencies: Experian, Equifax, and TransUnion. The details about a person's credit rating are summarized within a credit report, which describes a consumer's credit history, profiles ongoing relationships with current creditors, and provides information that a potential creditor or lender can use to make loan or credit approval decisions.

From these credit reports, credit scores are calculated. Credit scores are also used as a tool by potential lenders and creditors—as well as insurance companies, landlords, and potential employers—to help determine someone's creditworthiness and how responsible they are managing and paying their debts.

Every consumer is allowed to request one free copy of the credit report from each credit reporting agency, once per 12-month period. The easiest way to do this is to visit http://www.annualcreditreport.com, which is a website operated by the U.S. government in collaboration with the three credit reporting agencies.

At any time, it's also possible for consumers to acquire a three-in-one credit report that includes details from all three credit reports (from Experience, Equifax, and TransUnion) within one easy-to-read document, as well as their corresponding credit scores, but for this, a fee of up to $40.00 (or more) is imposed. Consumers can also subscribe to a fee-based credit monitoring agency for between $20.00 and $40.00 per month.

The Credit Karma App Can Help You Understand Your Credit Rating and Credit Scores for Free

For someone who is trying to protect their overall credit rating, rebuild their credit, improve their credit scores, or get themselves in a strong financial position before applying for a mortgage, car loan, student loan, or for one or more credit cards, the Credit Karma iPhone or iPad app and online service can be an extremely useful tool.

Perhaps the biggest perk of using the Credit Karma app and online service is that it is free of charge. Once you install the app and create a free account, the Credit Karma app obtains copies of your credit reports and acquires one corresponding credit score for free. It then analyzes this information on your behalf in order to help you understand exactly where you stand.

In addition, Credit Karma continuously gathers updates about your credit information. So as you pay off debts, pay down credit cards, and/or continue to pay your bills on time, for example, you can immediately see the positive impact this is having on your overall credit rating and individual credit scores.

Likewise, if you are taking steps that are negatively affecting your credit rating and credit scores, such as paying bills late, missing payments, or racking up too much debt, the Credit Karma app quickly brings this to your attention and provides detailed information about how to correct these actions.

Once you set up your Credit Karma account, which can be done from your iOS mobile device or by visiting the Credit Karma website from any computer, the main app screen displays your current credit score, as well as a colorful and detailed analysis of this credit score.

Keep in mind that the credit score provided by Credit Karma represents only one credit score (calculated by TransUnion), not the credit scores calculated separately by each of the other credit reporting agencies and FICO. This TransUnion score, however, is an excellent and reliable indicator of your current credit rating and situation.

In conjunction with your credit score, the Credit Karma app displays your credit rating (Very Poor, Poor, Fair, Good, or Excellent), and provides a colorful chart that helps you understand your overall situation. Any changes in your credit score since the last time the app was used are also displayed.

To view a more detailed analysis of your current credit score according to Credit Karma, tap the ">" icon that displays next to your credit rating. This secondary screen within the app shows changes to your credit score over the past 12 months, compares your credit score with the national consumer average, and provides an easy-to-understand analysis of your current situation.

Upon returning to the main Credit Karma app screen, you can tap the Credit Report Card, My Accounts. or Notifications option, each of which provides greater insight into your current credit rating. When you tap the Credit Report Card, for example, you get an overall letter grade relating to how you've been managing your credit.

In addition, other key factors relating to your creditworthiness (and that directly contribute to your credit scores) are also graded by the app, including the following:

  • Your open credit utilization: This is the percentage of available credit that you're actually using versus how much is still available. For example, if you have one credit card with a credit limit of $100.00 and you have a $50.00 balance on that card, your credit utilization is 50 percent. (Ideally, you want it to be less than 35 percent.)
  • Percent of on time payments: This grade focuses on how promptly you pay your bills, including your mortgage, car loan(s), student loan(s), and credit card payments.
  • Average age of open credit lines: The longer you've maintained a positive relationship with your creditors or lenders, the stronger this aspect of your credit rating will be.
  • Total accounts: This is the number of open accounts you have listed within your credit report(s).
  • Hard credit inquiries: This represents that number of hard credit inquiries that potential lenders or creditors have made to the credit reporting agencies. A hard credit inquiry occurs each time you apply for a new loan or credit card, for example. Within a six-month period, it's best to keep this number under three.
  • Derogatory marks: Any time you pay a bill late, miss a payment, have an account turned over to a collection agency, or do something that is listed negatively within your credit reports, it counts as a derogatory mark. Keep this number as low as possible (zero is ideal).

Additional subscreens within the Credit Karma app allow you to analyze each of these listed factors based on the current information that's being reported by your creditors and lenders to the credit reporting agencies.

From the main Credit Karma screen, tap the My Accounts option to see your overall outstanding balance for all your loans and outstanding credit card balances, as well as a 12-month history that shows changes to this overall balance and individual balances. Subsequent screens focus on analyzing your credit card balances, mortgage(s), car loan(s), and other significant loans you have outstanding.

The Notifications section of the app lists individual updates to accounts and credit report trade lines that have changed recently. For example, if you open a new credit card account, pay off a loan, or significantly increase (or decrease) your balance on a credit card, this will be listed in the Notifications section. If you discover new accounts that are not your own, this information can help you determine whether you've become a victim of identity theft.

Because the Credit Karma app and service is free to consumers, the app subtly displays ads for credit management-related services that the company is paid for. For example, you may see an ad banner that says, "Find the Best Credit Card for Your Credit Profile," which is a free service for consumers that can help you quickly find credit cards you'd get approved for, based on your current credit rating.

To log in to the Credit Karma app and service, you'll use your email address and a password that you create. As an added level of security, it is possible to turn on the app's own Passcode Lock feature. When turned on, an additional password is required to launch and use the app. To turn on this feature, tap the gear-shaped icon that's displayed near the top-right corner of the main app screen.

The Credit Karma app is available for free from the App Store. It's compatible with all versions of the iPhone and iPad.

Other Useful Credit-Related Apps

While the Credit Karma app will help you understand your current credit rating and score, there are other apps designed to help you actually manage your credit card and loan accounts. For example, virtually every major bank and credit card issuer now has its own proprietary app for managing credit card accounts related to that institution. You can use any of these free apps to view credit card balances, make payments, and/or manage other aspects of your account(s).

Similar apps are also available from Discover and American Express (AmEx) for managing credit cards issued by these companies. There's also an app and related online service, called Mint.com, which allows you to view balances and account-related information about all your credit card accounts, bank accounts, and loan accounts in one centralized place, also for free. The Mint.com app/service can be used to help you manage your spending and remind you to pay your upcoming bills on time.

Never before has it been so easy to keep tabs on your active accounts, spending habits, and credit rating. However, in addition to taking the proactive step of using the iPhone or iPad apps and related online services available to help you do this, it's essential that you take steps to properly manage each of your accounts, pay your bills on time, and pay down (or pay off) your outstanding debts.

This is something you should be doing on an ongoing basis. After all, even one late payment or missed payment can result in a dip in your credit scores that could take several months (or longer) to fix.

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