Have you ever been declined for a credit card that Credit Karma claimed you were pre-approved for? If so, you are far from alone.
According to the Federal Trade Commission, Credit Karma is in legal trouble because it forced supposedly “pre-approved” credit cards on customers who were then rejected by credit card companies, hurting their ratings credit. The FTC is ordering the popular credit monitoring service to pay $3 million to customers who were affected.
“False Credit Karma ‘pre-approval’ claims cost consumers time and subject them to unnecessary credit checks,” said Samuel Levine, director of the FTC’s Consumer Protection Bureau.
Nearly a third of people who applied for credit cards labeled as “pre-approved” were later declined 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 a “90% chance” of getting qualify for the cards. This prompted users to request credit card offers that they ultimately did not qualify for. This had a negative impact on their credit ratings, the FTC said.
The agency’s order requires Credit Karma to pay $3 million to be sent to consumers who wasted time applying for these credit cards. It also orders the company to stop making such misleading claims. The FTC did not specify how these consumers will be identified.
In response, Credit Karma said, “We fundamentally disagree with the FTC’s allegations regarding marketing terms that aren’t even used anymore,” but that it has reached an agreement with the FTC so it can start marketing again. help customers.
“The FTC’s allegations focus on Credit Karma’s historical use of the term ‘pre-approved’ for a small subset of credit card and personal loan offerings available on Credit Karma’s platform prior to April. 2021, and do not challenge the endorsement ratings language Credit Karma has been providing 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.
To use Credit Karma’s services, consumers must provide it with certain personal information, allowing Credit Karma to accumulate more than 2,500 data points on each consumer, including credit and income information, the FTC said. . Credit Karma uses this information to send targeted advertisements and recommendations for financial products, such as credit cards.
According to the FTC, Credit Karma knew that its alleged “pre-approvals” conveyed false “certainty” to consumers, based on the results of experiments, also known as A/B tests, showing that consumers were more likely to click on offers that say they are “pre-approved” than those that say they have an “excellent” chance of being approved.
So, are you interested in a premium credit card? The kind that earns you airline points and cash back on your purchases?
Ultimately, your best bet to qualify for one is to have a good credit score. A good tool to improve your score is to use a credit monitoring tool like Credit Sesame – or Credit Karma. But at the end of the day, the most important thing you can do for your credit score is pay your bills on time.
Mike Brassfield is senior writer at The Penny Hoarder.
This was originally posted on The Penny Hoarder, a personal finance website that empowers millions of readers across the country to make smart decisions with their money with practical, inspirational advice and resources on how to earn, save and manage money.