I’ve been using Credit Karma to track my credit score for almost 5 years now. I logged on today and noticed a substantial drop in my credit score from two weeks ago. This struck me as really odd because I have not applied for any new cards in the past couple weeks and haven’t missed any payments. After a little more investigating I found out that Credit Karma changed their algorithm for estimating credit scores.

Here is Credit Karam’s statement on their new credit score algorithm.

Credit Karma has adopted the VantageScore 3.0 score provided by TransUnion. The VantageScore 3.0 score replaces the TransUnion New Account Score on your Credit Karma account. The VantageScore 3.0 model developed by the three major credit bureaus is designed to be more predictive and may better score people who are new to credit than other models. VantageScore is widely used in the financial industry. The makers of VantageScore report that financial institutions, 8 of the top 10 credit card issuers, and 6 of the top 10 auto lenders and all 5 of the top mortgage lenders use VantageScore.

You may see a change in your credit score because of this switch. Each credit score model has a slightly different formula for analyzing the over 200 different factors of your credit report. No credit score model is exactly the same, so your credit score with different models may vary.

Here are the details on what affects your score and how much with the new algorithm.

  • Payment history (extremely influential): This factor still comes in at #1 as a predictor of risk. Late payments remain on your report for up to seven years for a reason. Creditors use your score to help determine how likely you are to pay your debt, so a history of untimely payments usually raises a red flag.
  • Age and type of credit (highly influential): This factor refers to your account mix and length of credit history. The key idea is to maintain a variety of account types, like credit cards and loans, over time.
  • Credit utilization (highly influential): Your utilization percentage is calculated by dividing your balances by your available credit. It’s generally recommended to keep your balances under 30 percent of your total credit limit.
  • Total balances (moderately influential): This looks at the balances of both current and delinquent debt. Similar to utilization, reducing the amount of debt you owe can help improve your score.
  • Recent behavior (less influential): This factor looks at how many credit accounts you’ve recently opened and the number of hard inquiries placed on your file.
  • Available credit (least influential): This is the amount of credit you have available at your disposal.

I really get dinged on the Age and type of credit because my oldest account is only 5 years old, and I don’t have much of a mix of types of credit.

In the end, Credit Karma is still just an estimate for your credit score. In my case, it has become a less accurate one than it was before (compared with actual credit scores I have gotten through credit cards).

Have you checked your Credit Karma recently? Did your score estimate change significantly?