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If you have a limited or negative credit history, Credit Karma’s Credit Builder account can help you establish or repair your credit when you make consistent, on-time payments. The account doesn’t require a credit check for approval, and has no fees or interest charge, making it an inexpensive and accessible option compared to the best credit builder loans. However, you’ll need to be comfortable locking up your funds until you reach the savings threshold. Read on to see whether Credit Karma’s Credit builder account is a good fit for you.
Credit Karma Credit Builder Overview
Operating since 2007, Credit Karma provides free credit analysis and financial management tools to clients online. Based in Oakland, California, the company claims over 130 million members in the United States, Canada, and United Kingdom. While best known for offering free credit scores, Credit Karma’s services extend through its partnerships to identity monitoring, credit cards, insurance, banking, and credit building.
The qualification requirements for the Credit Karma Credit Builder – Editorial Name Only account are mostly straightforward. You must be at least 18 years old with a valid United States address and Social Security number. The one uncommon requirement is that only applicants with TransUnion credit scores below 619 are eligible, since in that case your score is high enough that the Credit Builder may not improve it. There are no minimum credit or income requirements, and applying won’t result in a hard inquiry on your credit report.
Credit Karma has received largely negative reviews online, The company has a Trustpilot rating of 1.5 stars out of five based on over 550 reviews, of which 57% are only one star. Credit Karma’s Better Business Bureau profile has a rating of 1.14 stars out of five based on over 275 reviews, and shows over 2,200 complaints filed in the past three years and nearly 900 in the past 12 months.
Common complaints from Credit Karma users include IT problems; frozen accounts (without cause or notice); and low-quality, unresponsive customer service. While this feedback pertains to Credit Karma generally and is not specific to the Credit Builder account, the extent of negative reviews is noteworthy.
How The Credit Karma Credit Builder Works
To open a Credit Builder account, you’ll first need to enroll in a Credit Karma Money Spend Account – Editorial Name Only. This online checking account is serviced by MVB Bank instead of Credit Karma itself, but it has no fees, offers a debit card that earns cash back rewards, and is FDIC-insured. You don’t have to use the checking account; you just need to open it in order to proceed. Assuming you meet the eligibility requirements, you can then enroll in the Credit Builder.
Upon enrollment, Credit Karma will open a Credit Builder Savings account and a line of credit in your name. Once again, both accounts are serviced externally, this time by Cross River Bank. Each month, you can transfer funds (automatically or manually) from your line of credit to your Credit Builder savings account. You can transfer any amount from $10 up to your entire line of credit, though you won’t build credit faster by transferring larger amounts. You can also elect not to transfer for up to two months, but you must initiate a transfer at least once every three months to keep your account active.
When your monthly statement closes, you’ll repay the amount you transferred from your line of credit into savings. That on-time payment is reported to the three major credit bureaus, which adds positive data points to your credit history and can improve your credit score over time. You’ll also benefit from the line of credit increasing your reported credit limit. However, Credit Karma does not guarantee that using the Credit Builder account will improve your credit.
When the balance in your savings account reaches $500, you can transfer it to your Credit Karma Money Spend account. While leaving that savings with Credit Karma is an option, you’re better off transferring it elsewhere, since the Credit Karma Money Spend account does not earn interest. You can continue this cycle indefinitely to continue building credit, or you can close your Credit Builder account at any time with no fee.
Credit Karma Credit Builder Pros and Cons
Credit Karma offers an affordable and flexible way to build credit, but you’ll need to be comfortable parking your funds for a while, and the company comes up short in the customer service department.
Credit Karma Credit Builder Pros
No fees — The Credit Karma Credit Builder has no setup fees, no monthly fees, and no interest charges. The opportunity to build credit at no cost creates a massive advantage over competing productsFlexible payments — You decide how much you contribute to your Credit Builder each month, even if it’s nothing. That flexibility is helpful if you’re on a tight budget and don’t want to be locked into monthly payments.Reporting to all three credit bureaus — Credit Karma reports your payments to all three major credit bureaus (Equifax, Experian and TransUnion), so you can improve your credit score across the board.
Credit Karma Credit Builder Cons
Payout threshold on savings — Contributions to your Credit Karma Credit Builder savings account are locked until they total $500. You may be able to access those funds earlier by calling Credit Karma (or by closing your account). Otherwise, you’ll need to plan on being without that money until you hit the threshold.Abysmal customer service — Credit Karma’s customer service was contacted multiple times during the writing of this review, and the experience substantiated the extensive negative feedback the company has received from customers. Obtaining basic information about Credit Builder accounts required multiple contacts by phone and online.Maximum credit score requirements — Unlike most credit products that require a minimum credit score for eligibility, Credit Karma requires your credit score to be under 619 to apply.
Who Is Credit Karma Credit Builder For?
Credit Karma’s Credit Builder account is a useful option for anyone with limited or negative credit history who is looking to build (or rebuild) their credit profile. Unlike most credit builder loans, there are no fees or interest charges and no term limit, so you can continue using it at no cost as long as it has a positive impact on your credit score.
Also unlike other credit builder loans, Credit Karma is a viable solution even if you can’t commit to making monthly payments. Once you transfer funds to your Credit Builder savings account, you’ll need to pay off your line of credit on time and in full. Late or delinquent payments may be detrimental to your credit, defeating the purpose of opening the account in the first place. However, you don’t have to initiate that transfer every month if your funds are needed elsewhere
While Credit Karma’s credit builder loan can improve your credit score, it doesn’t have to be exclusive. You should also explore other ways to build and repair credit, such as rent reporting or a secured credit card. Many of the best secured credit cards allow you to earn rewards on purchases, but require a hard credit check.
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Credit Karma Credit Builder Frequently Asked Questions (FAQ)
Is Credit Karma Credit Builder a good idea?
Credit Karma’s Credit Builder account has no fees or interest charges, making it a good fit for anyone looking to build credit by establishing a track record of on-time payments.
Is Credit Karma Credit Builder legit?
The Credit Builder savings account, line of credit, and Credit Karma Money Spend account are all administered by FDIC-insured banks. While Credit Karma itself is not insured or accredited, the funds in your Credit Builder account are protected.
Does Credit Karma work with bad credit?
Credit Karma doesn’t check your credit when you apply for a Credit Builder account. As long as you meet the other eligibility requirements, you can be approved even with bad credit.