What's Your Grade? Credit Karma's Credit Report Card

Credit Karma

Credit Karma has launched a new, web-based tool that turns your credit score into an easy to read report card that grades your credit health. Best of all? It’s free. Credit Karma CEO, Ken Lin, was excited to talk about the new reporting tool that provides insight for consumers who don’t understand their credit score, but actively want to improve it. Taking into account the five major influencers on a consumer’s credit score (credit card utilization, length of credit, on time payment history, etc. ), it grades each metric and gives an overall grade.

“If you look at your credit report it’s anywhere from 8 to 10 pages of data, but no real correlation of your credit rating,” said Lin. “You can’t tell how those 12 pages actually influence your credit score.”

The Credit Report Card gives a clear understanding of where you can improve, simply by looking at any grades that may be down to a ‘C’ and working to make them an ‘A.’ By breaking down a credit report into seven metrics, a person can easily see how each unit relates to their overall score.

The 7 Metrics

Credit Card Utilization – the total credit card debt you have divided by the total available credit on your credit cards

Percent of On-Time Payments – Lin says that this is key since many young consumers don’t realize how important on-time payments are and then they suffer the consequences later in life

Average Age of Open Credit Lines – Old accounts should be open, active, and in good standing.

Total Accounts – Lin stressed that a healthy mix of revolving credit cards, charge cards, installment loans and mortgages will help you credit score.

Credit Inquires – Hard inquires for credit, such as when you apply for credit. **Credit Karma is a soft inquiry and therefore does not affect this metric.

Total Debt – A key metric in reviewing your finances

Debt to Income Ratio – Your DTI ratio compares the difference between your monthly income and the monthly amount you spend to maintain your debt.

Not only can a person log on and check out their grade for each of these metrics, but with just one click, they can see where they rank compared to their peers in the Credit Karma community. This feature is key to gaining a better understanding of how healthy, or unhealthy, your credit score may be.

“When we’re young, there are finance classes that we take and we know the basics, but if we really think about, it no one really tells us how important credit is,” said Lin. “Sometimes [we] learn the hard way.”

With so many people working to get their credit score up to par out of necessity for loan approvals and other major life purchases, Credit Karma’s Credit Report Card has pretty key timing and will no doubt help consumers take a look at the big picture. “We were so spoiled over the years with credit cards,” said Lin. “The next two years — it’s going to change a lot.”

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