Have you ever been turned down for a credit card that Credit Karma claimed you were pre-approved for? If so, you’re far from the only one.
Credit Karma is in legal trouble because it was pushing supposedly “pre-approved” credit cards on customers who then got rejected by credit card companies, hurting their credit scores, according to the Federal Trade Commission. The FTC is ordering the popular credit monitoring service to pay $3 million to customers who were affected.
“Credit Karma’s false claims of ‘pre-approval’ cost consumers time and subjected them to unnecessary credit checks,” said Samuel Levine, director of the FTC’s Bureau of Consumer Protection.
Nearly one-third of the people who applied for credit cards that were labeled as “pre-approved” were subsequently denied following a credit check.
The FTC alleges that, from February 2018 to April 2021, Credit Karma falsely told many consumers that they had been “pre-approved” for certain credit cards, or that they had “90% odds” of qualifying for the cards. That enticed users to apply for credit card offers that they ultimately didn’t qualify for. This had a negative impact on their credit scores, the FTC said.
Targeted Ads Touted Pre-Approval
The agency’s order requires Credit Karma to pay $3 million that will be sent to consumers who wasted time applying for these credit cards. It also orders the company to stop making these kinds of deceptive claims. The FTC hasn’t said how those consumers will be identified.
To use Credit Karma’s services, consumers must provide some personal information, allowing Credit Karma to amass over 2,500 data points on each consumer, including credit and income information, the FTC said.
Credit Karma uses that information to send targeted advertisements and recommendations for financial products, like credit cards.
According to the FTC, Credit Karma knew that its purported “pre-approvals” conveyed false “certainty” to consumers, based on the results of experiments, also known as A/B testing, showing that consumers were more likely to click on offers saying “pre-approved” than those saying they had “excellent” odds of being approved.
Credit Karma Responds to Accusations
In response, Credit Karma said, “We fundamentally disagree with the FTC’s allegations about marketing terms that aren’t even in use anymore,” but that it reached an agreement with the FTC so it can get back to helping customers.
“The FTC’s allegations are focused on Credit Karma’s historical use of the term ‘pre-approved’ for a small subset of the credit card and personal loan offers available on Credit Karma’s platform prior to April 2021, and do not challenge the approval odds language Credit Karma has provided to its members since April 2021,” the company said.
Credit monitoring companies like Credit Karma and its main competitor, Credit Sesame, provide tools that allow consumers to monitor their own credit scores and credit reports.
How to Score a Premium Credit Card
Ultimately, there’s only one way to qualify for a premium credit card — the kind that gets you airline points and automatic cash back on purchases. It’s to have a really good credit score.
With some hard work and determination, you can boost your score as long as you know where your weaknesses lie and where you need to improve. Here are our three main tips:
- Pay your bills on time. The best thing you can do to improve your credit score is to make on-time payments. That might mean sitting down and looking at your finances to figure out when to schedule payments for things like utilities and loans.
- Pay down balances. Once you have your payments under control, make a plan to pay down your credit card debt. Bear in mind that cards with a higher interest rate will incur more charges if you don’t pay them off in full each month, so aim to reduce the balances on these cards first to lower your overall monthly payments.
- Mix up your credit. If you already have a good credit score and want to improve it even more, look into mixing up the types of credit to your name. Maybe you could take out a loan for your next car or become a homeowner with a mortgage rather than a renter.
Frequently Asked Questions (FAQs)
How Worried Should I Be If I Use a Credit Monitoring Service?
Well, Credit Sesame hasn’t been accused of doing anything like this. And in its response, Credit Karma essentially says that it is no longer doing anything like this.
How Do I Identify Myself as a Victim If Credit Karma Did This to Me?
We’re checking with the Federal Trade Commission about that. It may be that the FTC already knows who all the victims are due to the FTC’s searching of Credit Karma’s records.
Which Credit Monitoring Service Should I Use, Credit Karma or Credit Sesame?
Mike Brassfield is a senior writer at Codetic.