Wednesday Websites #1: Credit Karma

Last weekend I wrote about credit reports.

But there is another thing that companies use when determining your financial acumen - the credit score. If your credit report is like your credit report card, then your credit score is like your GPA. The credit score is a proprietary number calculated by one of several credit bureaus. They take all of the information covered in your credit report - payment history, amount of outstanding debt, etc - and boil it down into one number that is supposed to predict your credit worthiness.There are several credit scores, but the most common is the FICO (Fair Isaac Corporation) score.

Your income is not considered at all in your credit report or your credit score. You could be making a million dollars a year, but if you are borrowing 2 million dollars and having trouble paying it back, you could still have a very low credit score. Your score simply describes your likelihood of paying back your debt responsibly.

Although you are entitled to one free credit report annually from each of the three credit bureaus, you are not entitled to free credit scores. You can purchase them as an add-on to your credit reports at annualcreditreport.com, or you can purchase them individually. Since each score purchase runs $7-$12, that can add up very quickly.

But luckily there is an awesome website that allows you to get your credit score for "free"! At CreditKarma.com you can obtain your credit score as frequently as you want, and it will not cost you a dime. They pay the $7-$12 fee for you by posting related ads around the site.

Once you are on Credit Karma's website, please explore! It is chock full of helpful information, and literally breaks your credit score into sections and gives you a grade on each so you can see what parts of your credit activity you need to improve. These sections include:

-- Credit utilization
-- Percentage of on-time payments
-- Average age of open credit lines
-- Total accounts (number and type)
-- Hard credit inquiries
(When you apply for credit, they make a 'hard inquiry', which affects your score. If you check your own credit, it is a 'soft inquiry' and does not affect your score)

The other amazing part of the site is the Credit Score Simulator. Here, you can input potential changes to your credit activity, such as closing a credit card, increasing a credit limit, or making a late payment, and you can see how it will potentially affect your credit score. From my experience it is fairly accurate too! When I increased one of my credit limits by $2000, it showed that my credit score would increase by two points. So I called up my credit card company, asked them to increase my limit by that amount, and sure enough, my score went up two points!

This is a really useful tool to help you wrap your head around the complexities that make up a credit score. Check it out!