Can I Trust Credit Karma?

Q: I’m trying to increase my credit score ahead of applying for a large loan, so I’m considering signing up for Credit Karma to track my score. How accurate are the credit scores it shares? Is there anything I need to be aware of before signing up for this service?

A: Credit Karma is a legitimate company; however, for a variety of reasons, its scores may vary greatly from the number your lender will share with you when it checks your credit.

We have answers to all your questions about Credit Karma.

What is Credit Karma?
Credit Karma is an online credit service that operates under the principle that everyone is entitled to a free and honest credit score. To that end, the site allows you to check your credit whenever you’d like without paying any fees – a privilege that can cost you about $20 a month from its competitors. You’ll need to sign up for the service and share some sensitive information, like your Social Security number and your financial goals, but you won’t be asked for any credit card numbers or account information.

Scores are updated once a week, and the company only performs a “soft inquiry” on your credit to get the necessary information – which means your score is never impacted by it checking your credit on your behalf. Credit Karma also offers lots of credit advice, customizable loan calculators, and reviews on financial products of all kinds.

Credit Karma earns its profit through targeted ads. As you learn your way around the site and start to frequent it more often, you’ll see ads that are geared toward your specific financial situation. For example, if your credit is excellent and you’re looking for a home loan, you’ll probably find loads of ads from mortgage companies. While this may seem like a breach of privacy, it’s no different than the way much larger online platforms you likely use, including Google and Facebook, earn a profit.

How does Credit Karma calculate my score?
The online credit company uses information from two of the three major credit reporting agencies, TransUnion and Equifax, to give you a VantageScore 3.0. While this type of credit score is gaining popularity among lenders, you may not recognize it – and for good reason. The FICO scoring model is by far the most widely used credit score among financial institutions and lenders across the country, with 90% of lenders using this score to net potential borrowers.

The atypical scoring model used by Credit Karma, coupled with the absence of information from Experian, the third of the three major credit reporting agencies, tends to make Credit Karma scores differ from scores pulled by other companies and financial institutions. The credit service is usually within range and a good indicator of your overall credit wellness. You can also get a report with a thin credit history through this model, which is super-helpful for those seeking to build their credit from nothing.

How do other lenders calculate my score?
Most financial institutions use a FICO scoring model to measure consumers’ credit scores. As mentioned, this number will likely be lower than the score you see on Credit Karma, but will fall within the same general range.

It’s also important to note that, each time you apply for a specific kind of loan with an individualized lender, it will likely also use its own customized formula. For example, if you were applying for a mortgage with a home loan company, it would probably use a score that is specifically developed for mortgage loans. Similarly, if you were to apply for a car loan from an auto lender, it will use its own score designed to predict the likelihood of you defaulting on an auto loan. This can result in an even lower credit score from these lenders.

Is there any other way to get my credit score?
If you’re looking for a more relevant credit score, you have several options. You can ask a potential lender to pull your credit, though this might cost you both in fees and in a knock to your credit for the hard inquiry. You can order your free credit report with information from all three credit bureaus once a year, at AnnualCreditReport.com.

Lastly, for more frequent monitoring, you can sign up for access to your FICO score and 3-bureau credit report on Experian.com, where packages start at $19.99 a month. There are other similar services out there, but most are not legitimate or are grossly overpriced.

How does DoverPhila Federal Credit Union decide if I’m eligible for a loan?
We use the FICO model to calculate your credit score when you apply for a large loan. While this number will likely differ from your Credit Karma score, it gives us a broader picture of your credit as it includes information pulled from all three credit bureaus. We’ll also review your full financial history and trajectory to determine if you are eligible for the loan.

Here at DoverPhila Federal Credit Union, our goal is to help you achieve and maintain financial wellness. Consequently, we are far more likely to approve a loan for one of our members than a random lender who doesn’t know the first thing about you or your financial history.

If you’re trying to increase your credit score before applying for a large loan, we can help! Stop by DoverPhila Federal Credit Union today to speak to one of our free financial counselors about steps you can take to improve your credit.

If you’re ready to take out that loan, make DoverPhila Federal Credit Union your first stop! Our stress-free application process, low interest rates, and reasonable terms make us the best choice for your next large loan. We’ll help turn your dream home, car, or business into a reality.

Cash Flow Budgeting: A Fast, Flexible Way to Fix Your Finances

You’ve heard it from a million places: Budget your money! Make a firm plan and stick with it. It’s the pathway to prosperity!

For many people, though, that advice just doesn’t resonate. They feel constricted by a budget. Keeping cash in separate envelopes makes them feel like they can’t have a life. It takes too much planning and too much rigid denial. They break their budget and sometimes wind up in serious financial trouble.

Other people have an inconsistent cash flow, making creating and keeping a budget difficult. Maybe they’re freelancers who work gig-to-gig. Maybe they’re in commissioned sales. Maybe their hours fluctuate from month to month. Whatever the reason, it’s hard to make a detailed plan when your bottom line changes every month.

The answer isn’t to give up on budgeting. The collective wisdom, that monitoring your expenses and income streams is the way to stability, still holds true. It might just require a different approach to budgeting: cash flow focus.

Cash flow focus is the strategy used by most businesses. They pay their fixed costs, and whatever is left is used to grow the business. You can manage your finances the same way. Just follow these four steps:

1. Automate your savings. Even if you disregard everything else in this article, implementing this one tip can be life-changing. Figure out how much of your income you can save, and then take that out as soon as you get paid. You can set up monthly transfers from your draft account to your savings account. You can also divide the money between the accounts on a per deposit basis. How you choose to do so is less important than doing so.

Like the saying goes, pay yourself first. This savings provides you the flexibility to cover big expenses or make major purchases on your schedule. It’s the single most important step in any budget, but it’s even more important with cash flow budgeting.

When you automate your savings, you remove the money you saved from consideration. You can’t spend it; you’ve already spent it on savings. The importance of this kind of savings will become more clear once you see this budget in action.

2. Pay your needs and your priorities. Make a list of your essential expenses each month. Include your rent or house payment, your car loan, and your utilities. Also include your student loan payments, your insurance, and other necessary expenses. These are your “fixed costs.” They get paid after your savings contributions are made.

Next, make a list of your priorities. Include your charitable contributions, vacation savings, and retirement account contributions. These are your “growth expenses.” They get paid after your fixed costs.

If you don’t have enough money to make these bills, you don’t need a better budget. You need to lower those bills or increase your income. No amount of spreadsheet magic will change that bottom line.

It’s helpful to automate savings for these expenses, too. That way, you never get caught short on these bills. Transferring this money to a check-only draft account can be a helpful way to ensure you don’t spend it.

3. Spend the leftovers. This message may sound peculiar for personal finance advice. Remember, though, that you’ve already automated your savings. What you’re spending here is the leftovers – the extra that’s left at the end of the month.

 Spend this money however you like – don’t worry about putting this much in entertainment and that much in travel. Just keep track of how much you’ve spent so you don’t accidentally overdraft your account.

This approach allows you to go out or indulge in a latte. You don’t have to worry about including it in your budget. Your spending habits might change as the month goes on, just like a business. If you know there’s a big outing before you get paid again, you may want to save some money for that. You don’t need to say that you can’t go because you didn’t budget for it.

4. Roll over what’s left. If you have worked in a big business, then you have seen departments desperately spending at the end of the fiscal year. Departments buy cases of pens and paper, knowing that they will lose whatever they don’t spend. Fortunately, you’re more flexible than a big business. You don’t have to spend it all. If you have money left over at the end of the month, then you have more to spend the next month.

If you have a month with slightly higher expenses, you can cover it from a previous month’s slightly lower expenses. Your spending will change from month to month, as might your income. So long as you keep the former smaller than the latter in the long run, you’ll be fine.

That’s what cash flow budgeting is about: flexibility. You don’t have to write your non-budgeted spending purposes in stone. You don’t have to mess with cash envelopes or other strategies. You can spend when you have money and save for when you don’t.

DoverPhila Federal Credit Union can help if you’re thinking about adopting a budget. A friendly, knowledgeable financial counselor can walk you through the savings tools you need. You can automate your savings, flex your spending, and build toward financial security. Members can call 330-364-8874 or stop by the credit union’s main office on Fillmore Avenue in Dover for more information.

How to Stay Safe with the Wallet of the Future

Apple Pay, Samsung Pay and other mobile wallets are revolutionizing the checkout experience by blending two developments in payment infrastructure to save you time: near-field communication (NFC) and token encryption.

Approximately one-third of all payment terminals nationwide have been updated to accept Apple Pay. It works on phones equipped with the necessary NFC equipment. If you have an iPhone as recent as an iPhone 6 or newer, you can use the preinstalled Passport app. There are simple, on-screen instructions for adding a debit or credit card. You can even add your DoverPhila Federal Credit Union card!

Samsung Pay is structured similarly and will work on select Samsung Android devices. However, Samsung has incorporated magnetic secure transmission (MST) technology, too. Hold a phone against a payment terminal and it emits a signal that simulates the magnetic strip on a debit or credit card. In terms of convenience, this means you can use Samsung Pay on almost any payment terminal. The only situation where Samsung Pay won’t work is when you need to insert your card into a slot.

Mobile wallets transfer money from customer to vendor via tokenization – the use of a non-secure piece of data to stand in place of a secure one. 

When you make a payment with one of these services, the app creates a token – a random series of numbers – corresponding to your account, along with a one-time security key. It transmits that data to the payment terminal, which sends that token to the “token vault,” a secure database linking these tokens to actual accounts.

If the security key is correct, the token vault transmits a charge directly to the linked cards and returns a verification of funds to the payment terminal. Since the token vault is hosted at the payment processor, the point-of-sale terminal never sees your card information. 

In an ordinary payment, the terminal reads your card information and then transmits it to the payment processor, which then transmits it to your financial institution. This means your information is stored in three different places. 

With tokenization, though, your information is seen only by the payment processor and your financial institution. That’s fewer points of vulnerability for your data. This also means that Apple and Samsung have no idea what purchases you’re making. For fans of internet privacy, this is heartening news.

There are other layers of security involved in these services, too. To use Apple Pay, you’ll need to use TouchID, FaceID or input your PIN. For Samsung Pay, you’ll have to authenticate your fingerprint, input a PIN or confirm an iris scan.

Whether you’re an Apple fan or a Samsung supporter, mobile wallets are an efficient, secure way to pay. As a valued card member of the credit union, you can make mobile payments with a compatible Apple, Android, Windows or Samsung phone, tablet or watch, without ever handing over your card. This service is available for both debit and credit card users. Click here for more information regarding this feature.

Medical Identity Theft: What to Do and How to Prevent It

Medicare is replacing its old cards with new ones. They contain an 11-digit code instead of a Social Security number. Unfortunately, even though the cards have not yet been issued, scammers are taking advantage of this change.

A caller pretending to be a Medicare representative will ask for payment in exchange for the new ID. Alternatively, the caller might claim to need the victim’s medical information to send out their new card. In reality, though, the cards are free and will be mailed automatically.

In another variation, a caller will wrongly insist that the victim must purchase Medicare’s prescription drug coverage or risk losing all coverage. 

In another ruse not limited to Medicare members, the caller asks for the victim’s checking account number and Social Security number to deposit a supposed refund from their insurer.

Once the scammer has the victim’s medical information, though, they can:

  • Pose as the victim to see a doctor,
  • Obtain prescriptions, and
  • File a false health claim.

Don’t be the next victim!  Here’s what you need to know about medical identity theft. 

The cost.
The average medical identity theft costs $13,500 to fix, but can affect other areas of life and home, such as:

  1. Loss of health coverage. Scammers might max out your benefit limits, leaving you with no coverage. 
  2. Ruined credit history. Scammers can destroy your credit history by racking up hospital bills in your name and then disappearing.
  3. False medical records. When the scammer receives treatment in your name, it’s documented on your medical records. This can be extremely dangerous when you seek medical attention in the future.
  4. Higher premiums. The scammer’s medical activity may cause your premiums to rise. 

Preventing medical scams.
Take proactive steps to ensure you’re not the next victim.

  • Know that Medicare will never call you. They always contact members via mail.
  • Be wary of suspicious-looking bills from third-party providers. If you receive any, alert your insurer immediately.
  • Study your Explanation of Benefits (EOB). If you spot treatments you don’t remember receiving, notify your provider.
  • Check your medical records. Always check them regularly for suspicious doctor visits, prescriptions or maladies.
  • Review your credit history often. If you see unfamiliar charges, immediately ask for a fraud alert and place a freeze on your credit.

Fixing your medical history.
If you spot an error on your medical records, it’s crucial that you correct it so it doesn’t affect your medical treatment in the future. Send a copy of the documents detailing the discrepancy to every medical professional and facility involved in your care. 

Fighting back.
If you’ve been victimized by medical identity theft, be sure to report it! Alert the FTC using their website at www.ftc.gov, or at 1-877-438-4338. If you are a member of Medicare, call 800-MEDICARE or visit www.Medicare.gov. Alternately, report the scam to your own insurance provider.