CreditKarma gives you free access to your credit score - probably the most important financial figure in your life. And, in the world of earning miles, it is everything. Which makes it even more surprising ordinary people don't understand such a simple concept.
With this in mind, CreditKarma did something about it - when you sign up for their website and enter your information, their system uses soft inquiries to determine what your score is. This method is important because it obtains your score without hurting it. The end result is an easy-to-view template, that can be updated monthly, with no negative consequences to your credit score.
In addition to credit scores, Credit Karma has a ton of other free features - the site gives detailed summaries of what is impacting your credit score, allows you to see what the affect of a new credit card will be and even tracks your credit card spending across multiple cards. I check the site monthly and always do so prior to a card application.
And if the detail isn't enough, Credit Karmaalso spell out what impacts your credit score and why. For easy reference, below is a short description of the specific factors that influence your score (and how to maximize them).
- Payment History – The #1 most important aspect of your score. Pay your bills on time, every time and you’ll receive an “A” in this category.
- Derogatory Remarks – These are negative marks on your credit, often resulting from outstanding debts, bankruptcies, etc. This is also often misreported by a credit bureau, meaning you’ll have a mark that is not accurate. For example, a friend of mine had a medical bill he had paid that was not reported. Once he called and confirmed the error, his score jumped - by nearly 100 points!
- Credit Card Utilization – This is your debt balance versus your total available credit. For example, purchasing $1,000 on a credit card with a $10,000 credit limit would result in a 10% utilization rate ($1,000/$10,000). This wouldn't be as good as one percent; the lower the percentage the higher your score. Pay your bills in full and on time and you’ll never have to worry about this negatively affecting your score.
- Age of Credit History – One of the top reasons for denial of rewards cards, this is total length of credit history divided by number of cards. For example, two cards – one opened today and another opened 10 years ago – is an average age of five years. But two cards both opened today would have an average age of a day. Make sense? The longer your average age the better - especially hard when starting out.
- Total Accounts – Exactly what it means; how many credit accounts you have on record, which includes closed accounts for several years. One thing readers are surprised to hear is that 20+ open credit cards is not uncommon at all. If you pay off the cards in full and keep your oldest accounts open, more cards actually leads to a higher credit score.
- Credit Inquiries – When you apply for a credit line, the business will “pull” your credit report to determine if they should approve you. This is considered a hard inquiry (as opposed to a soft inquiry which does not affect your score, like used by Credit Karma). These have minimal impact on your credit score, but too many hard inquiries is a red flag when applying for a new card.
Again, the above is a brief synopsis of a very complex subject. But it is a start. If you still have questions, I recommend reading my highly popular post on why multiple credit cards doesn't hurt your credit score. Also a good read is this post - specifically step 3 - about how to increase your score more quickly.
All things considered, there is a reason that this website is an integral part of my Getting Started Guide and I recommend you sign up today - whether at the onset of your miles career or as an advanced flyer.