At Credit Karma, we want to give our users access, information, and leverage. We read everyday about the importance of credit but I don’t think we do a very good job quantifying it. Last Friday, I called up a friend at E-LOAN and asked about the best rates for a 650 credit score versus a 600 credit score mortgage rate. For the 650 borrower, the best rate was 6.75% with no points. For the 600 borrower, the best rate was 8.75% with 3 points.

Assuming a $250,000 mortgage and using our mortgage calculator, you will see that the 600 borrower will pay over  $93,000 more over the life of the loan in interest and will have to pay an additional $7,500 in closing costs. That means, a mere 50 point difference in credit score can cost upwards of $100,000. The difference is obviously higher if you have a larger mortgage assuming you can get the loan. To me, this makes credit the most important number in your financial health more than your SSN, credit card number, or even the balance in your bank account.

With this in mind, I suggest that you keep an eye on your credit score. You know better than anyone when you will have a major purchase. So when you plan your next big purchase (mortgage, car, etc.) , be diligent about knowing your score. Check it once a month and make sure you know the factors that make it go up and down. Remember that good credit takes years to build only only a few missed payments to destroy. Given the costs associated with credit, it can be the most expensive mistake of your life.

While most of the major banks are providing .25%-3.25% interest, there are many small community banks and credit unions that are willing to provide 4%-6% interest on your checking and saving deposits. I was a bit skeptical when I first saw the rates since it seemed too good to be true and way out of the market averages.

However upon further investigation, it appears these programs are legitimate. These savings and checking programs hope to build a more loyal and profitable customer.  The small banks and credit unions that participate hope to compete with the big banks by providing a better rate. In exchange, these programs require you to actively use their product. Some requirements are using their check card, registering for direct deposit, and receiving electronic statements.

Credit Karma has long had some of these offers available and judging by the comments and voting users really like concept. The big negatives from the comments has been the fact that the small credit unions are not accessible and very regional. I recently met the CEO of a new site, CheckingFinder, at Finovate. Their new service allows users to find these great programs based on your zip code. They recently launched the site and I’d like our readers to see if works for them.

Because of the requirements, its not the perfect product but for many looking to maximize their return this is definitely a good way. Give it a try and please share your experience.

We get asked this question quite often. Technically, it can change any point your credit report changes. Any of the following can trigger a credit score change:

1. Missing a Payment
2. Applying for a New Loan or Credit Card
3. Changing Your Available Credit
4. Defaulting on a Loan or Charging Off
5. Bankruptcy
6. The List Goes On……

But some people have asked why their score has not changed in months. Well, my score hasn’t changed since we launched the service in Feb, 2008 until just this week. As background:

* I have a mortgage
* I don’t carry any balance on my credit cards
* I’ve had a good payment history for over 15 years
* I don’t apply for credit often

A few days ago, I decided to apply for one of the Gas credit cards I wrote about. I then updated my credit score the next day. My score dropped 6 points from the inquiry. I’m sure it will change again when the credit card provider reports my credit line and utilization to the bureaus. I suspect it will jump back up since I won’t carry a balance and it will increase my total available credit.

I’m writing this to let users know that your score shouldn’t be constantly changing if you are stable with your finances and credit. I’ve had the same score for over 3 months so don’t be concerned if your score isn’t jumping around. Part of the service is built to instill a sense of comfort and familiarity with your score.

With gas prices averaging near $4.00 per gallon and a chance of them hitting $5.00 per gallon this summer, gas-based reward credit cards deserve a second look. Rebates range from 6% to 3% based on the card, saving you $.12 to $.24 per gallon. Most cards even have 1% back on all other purchases, making them a great general card as well. Each card has its own set of requirements and disclaimers so please read disclaimers carefully.

Discover Open Road(SM) Card - 5% Cashback bonus on gas and auto maintenance purchases up to $1200 in gas per year. 1% cash back everything as well. The intro APR of 0% and regular APR of 10.99% also makes the rates attractive. The card claims you can get 5% to 20% cashback at top online retailers as well. I didn’t see the list in the Terms and Disclosures.

Chase Perfectcard(TM) Mastercard - This card has 6% back on any gas purchase the first 90 days and then goes to 3% afterward. It also carries 1% cashback on all other purchases. The into rates are similar to the Discover Card above. I didn’t see any limits like the Discover card when I scanned the Terms and Disclosures.

Chase BP Visacard - This card is great if you live near BP. They are doubling the rebate amount on gas to 10% for the first 60 days. Nice if you plan on taking a long summer driving trip. This combined with the other rebates looks tempting. Their rates are not as good as the ones above, but if you pay your bills off every month and live near BP gas stations, this seems like a nice card.

I’ve listed some of the ones I could find. If you know of a better gas credit card, please leave a comment and update the post.

On a daily basis, we get several emails and questions about why a consumer’s score is different from their other score(s). These questions and confusions on credit are exactly why we developed Credit Karma. To properly answer the question, there are five things that consumers should keep in mind.

1. There are three different credit bureau: Equifax, Experian, and TransUnion. Each credit score is developed with data from one of those bureaus, and each bureau may have slightly different information about a user.  A majority of the information will be consistent, but the bureau used can lead to differences in scores.
2. There are different brands of scores. FICO is probably the best known of the brands of scores, but FICO is analogous to Kleenex for tissue. It’s just the brand name; there are several other tissues that do the same thing. To say one is better to the average consumer is a function of their marketing and brand building. All credit scores are built from the same underlying bureau data using the same mathematical process.
3. There are hundreds of credit scoring algorithms (formulas). Some credit scores predict mortgage default, others auto loan default, and some are for people with short credit history. Even within FICO, there are several different scores for different purposes.
4. Credit Scores can change at any time. A score technically changes anytime the credit data files that drive it changes. Since a bureau can update your credit report at any time, your score can change at any given point.
5. All credit scores are highly correlated (related). A movement within one score or bureau will often be indicative of all other scores. It’s a natural behavior of statistics and how these credit scoring algorithms are built.

For our users, we recognized that all of this information is both confusing and annoying. If you take points 1-4, there are an infinite number scores for any given consumer. To address the problem, we decided to provide one consistent benchmark into user scores. That means we use the same bureau and same algorithm. Everything is the same but time and the information on your credit file. The idea is that if your Credit Karma score changes, it means something in your file changed and your other scores probably changed as well.

I hope this is useful for our users that ask why their scores are different. Let us know what you think with comments below.

I presented at Finovate on April 29th. After the presentation, we had lots of great feedback about Credit Karma. Aside from the truly free credit score, attendees really liked how we made our offers transparent.

In case you haven’t seen one of our offers, we share several metrics based on how members view the various offers (for better or worse).

User Voting - The percent of users who voted that this is a good offer.

Exclusivity -Based on how many members are eligible for the offer. Higher exclusivity means fewer people are eligible.

Take Rate - Ranked against all offers, this measures the relative percentile of members who apply for an offer.

The common thread of all the metrics is that we hope the Credit Karma community will help others decide the good / bad offers. We don’t want to suggest what you should like, we want users like you to suggest what is interesting and what is not.

We are big fans of transparency. More sites are moving in this direction and we want to be supporters of the movement. We plan on adding more features along these lines. For now please continue to vote and add comments so we can all share our experiences and knowledge.

Let us know if you like the concept.

If you have ever wondered if age affects credit scores, the answer is yes. Based on our data, we analyzed the relationship between age and average credit score for a sample of Credit Karma users. The relationship is quite clear that age is positively correlated to credit score. The older an individual, the higher their credit score on average.

In statistics, it is always important to recognize that correlation does not imply causality. In this case, age does cause changes in score. Most credit scoring algorithms take into account the length of your credit history and trade lines. The longer your trade lines are in good standing, the better your score. It therefore makes sense that younger people will have younger trade lines and therefore lower credit scores on average. The rationale is simple: the longer you have maintained a credit line in good standing, the higher demonstrated level of responsibility and therefore lower risk.

It is also import to note that younger people may have few accounts as well. The breadth of credit lines is another factor in score. This is not to say that someone 18-24 can’t have a high credit score. There are many factors affect your credit but on average a younger person will have a lower score.

The other plausible factor is that older people tend to be more responsible. For the same reason that drivers over 25 get a discount in their auto insurance, I suspect that older individuals tend be more responsible in their financial behavior and therefore would have higher scores as well. This is more a personal theory. Perhaps this can be the topic of future analysis based on our data.

Share your thoughts.

Disclaimer: This data is based upon a sample of Credit Karma users and may not be indicative of national averages or trends.

As a homeowner, I get a lot of junk mail. In particular, I get lots of offers for 0% financing for major appliances and big ticket items. The Home Depot and Best Buy are probably the largest contributors.

On the surface 90-180 days of 0% APR sounds great. If you read our prior article, you could put the major purchase in a short term money market account and make 2-4% interest for the 90-180 days and get a small bonus for your purchase.

The problem is that most consumers don’t use this approach. They fail to read the fine print. Take a look at the excerpt from The Home Depot Credit Card disclosure below:

“No Interest. No finance charges will be imposed on this balance if you pay the amount of the balance in full within the promotional period. If you do not pay the balance in full prior to the expiration of the promotional period or if the promotional offer is otherwise terminated, finance charges on this balance will be imposed from the date of purchase until the balance is paid in full.”

This means that if you don’t pay the balance in full by the time the promo period ends, you will accrue interest from day one. This is often the rub of these type of offers. The truth is that a majority of the consumers will not pay off the balance in full within the 90-180 days. This leave the consumer paying 20-24.8% interest from day one.

From the retailer’s perspective, this is great. The consumers buys major appliances with a nice margin. Then the retailer get the consumer to pay for extremely high interest for months to come.

As a savvy consumer, you should always be aware of the fine print. As a rule of thumb, retail credit cards will have a higher APR than that of standard credit cards. I would recommend only using retail cards in two scenarios.

1. You understand the fine print and are taking advantage of the same as cash benefits. Sometimes these credit cards will get you another 10-20% off the initial purchase.
2. Retailer cards will have smaller limits and less stringent underwriting guidelines. This means if you have no credit history this may be a good place to start building one. With that said, plenty of major banks will give you a small credit line too if you are just starting to build a credit history.

Most times you will do better getting a 0% rate from a major issuer since their products don’t accrue from day one. There are some pitfalls with those offers too. I’ll discuss that next time.

Every time the Fed lowers short term interest rates there is a flood of questions asking: “Is it a good time to buy or refinance?”. For the majority of people who are looking at 30 fixed rate year loans, the answer is “No.”

Unlike credit cards, auto loans, and home equity lines of credit, Fed rate changes have little bearing on long terms rates which are more correlated to inflation and other macro level events.

(Note: Because of refinancing, the average life of a 30 year fixed rate mortgage is closer to 10 years. Therefore a 10 year treasury is often used to index a 30 year fixed rate mortgage. The fixed rate mortgage will always be higher than the 10 year treasury because there is inherently more risk in a mortgage than a US government backed security.)

Below is a correlation of the fed funds rates, the 10 year treasury, and the average 30 year fixed mortgage rate. Recently, there is a divergence between the 10 year treasury and the 30 year mortgage rates. While the 10 year treasury has gone down, mortgage rates have stayed flat or increased.  This is due to the recent problems in the sub-prime mortgage industry.

Hope this helps clarify a few things. You can check the latest mortgage rates on Credit Karma.

Lately I’ve heard a lot of people touting the idea of using 0% APR credit cards as a way to feed alternate high-yield savings plans. The concept itself is simple; you basically borrow money at no interest and put it into an account (or several accounts) that will earn you a decent interest rate- something, say, in the neighborhood of 3% - 6%.

The easiest way to do this is to your use your good or excellent credit to secure 0% APR credit cards that allow balance transfers or convenience checks. Lenders use this kind of offer all the time to increase balances on cards that they expect you to keep after the 0% grace period is up. Some of them will even offer bonuses for your first transfer to entice you that much more.

On the surface this seems like one of those loophole situations where you wonder “why didn’t I think of that?” because as long as you pay off the cards before the interest rate goes up you’ve effectively used one bank’s money to earn yourself interest at another bank. And the more 0% credit you can use, the more you can earn.

Many people claim to have made several thousand dollars a year with this method but, of course, no loophole is ever airtight. There are some inherent dangers:

1. Having multiple credit card inquiries will temporarily lower your credit score. This may be a problem if you are attempting to secure a loan, especially a home or auto loan.
2. Having high balances and using a high percentage of your overall revolving credit line will also lower your credit score.
3. If you miss just one payment on one of the credit cards you could be immediately repriced into a high APR. Upwards of 30%. This could severely jeopardize your overall return on investment if you cannot find another place to put that debt. See this article for an idea of what I’m talking about: “A Credit Card you Want to Toss“

To me, it’s just not worth the time, hassle, or detriment to my credit score for the extra dollars I’d be lucky to make. I’d have to apply for several cards, keep track of when the introductory 0% APR is over for each one of them, remember to make payments on all of them every month, and so on.

But hey, every person is different, and if you want to try it out more power to you. There are certainly plenty of offers out there for people with good credit. Both 0% APR credit cards and high-yield savings offers are available on Credit Karma. If you try it out, let me know how it goes.