Declined for a Credit Card? Credit Karma Might Owe You Cash

Being rejected may actually pay off.

No matter how great your credit score is, there's always that bit of apprehension when applying for a new card. And if you have any doubts about your credit score, those worries only intensify.

Credit card pre-qualification is one of the tools many of us use to help allay some of those worries. A few quick questions and a soft credit check later, and the issuer tells you which credit cards it thinks you might be approved for if you apply.

But what if the issuer doesn't offer pre-qualification, or what if the card you want doesn't show up? Well, then you can rely on Credit Karma! At least, that's what the site's users thought. But for as many as a third of them, Credit Karma's recommendations resulted in nothing but a rejected application -- and a wasted hard credit pull.

And now, those same "recommendations" have landed Credit Karma in hot water with the FTC.

"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. "The FTC will continue its crackdown on digital dark patterns that harm consumers and pollute online commerce."

‘90% chance of approval*’

For many years, Credit Karma cultured an air of altruism. You can sign up for free and have round-the-clock access to your credit scores and reports. It’ll even offer recommendations on which cards to apply for -- including giving you your approval "odds." How helpful!

Unfortunately, the FTC pulled revealed the behind-the-scenes reality of those oh-so-helpful recommendations. According to the FTC's recent complaint against Credit Karma, the "preapproval" and "90% odds" language wasn't a realistic look at your odds of being approved. Instead, it was finely tuned marketing lingo specifically designed to install "false certainty" in consumers.

And it worked. Many people applied for cards based on these recommendations -- cards for which they weren't actually qualified. Now, Credit Karma owes some of those people money.

FTC payments

A part of the FTC's action against Credit Karma involves a big fine. Specifically, Credit Karma has agreed to pay $3 million in customer redress. The money will go to the FTC, who will then send it out to consumers who have been harmed by Credit Karma's actions.

If you were one the people who were rejected by a credit card issuer after being supposedly "preapproved" by Credit Karma, you may be owed a share of that fine.

For now, everything is still in the early stages. The FTC is holding a period of public comment through the beginning of October. After that, the settlement needs to be finalized. Then, Credit Karma will need to pay the fine as well as provide information for the customers who would qualify for a part of the settlement.

After all that is done, it's up to the FTC to decide how to assign payments. You may need to request your share, or it may be paid out automatically. We simply don't yet know how it will play out.

However, payments from the FTC fine aren't the only form of monetary compensation some users may be owed. There's also the "Karma Guarantee."

‘Karma Guarantee’ payments

One of the newest additions to the Credit Karma's recommendations is the "Karma Guarantee" badge. Essentially, it means that if you apply for an offer with a "Karma Guarantee" badge and are declined for the card, Credit Karma will offer you a payment.

If you are rejected for a card with a "Karma Guarantee" and are eligible for a payment, you should receive an email notification. If you have a Credit Karma Money Spend account in good standing, you can receive the payment in that account. Otherwise, you'll be emailed an Amazon gift card.

There are a few caveats, however. To be eligible, you must:

• Not already have the card;
• Not have recently applied or been declined for the same credit card offer;
• Not have already been declined for an offer with the Cards Karma Guarantee in the last 90 days; and
• Fully complete an application for the credit card offer with the Cards Karma Guarantee, including providing any documents required by the lender, while signed in to your Credit Karma account, and are declined.

The company doesn't specify the size of the payment on its informational page about the badge. However, some users have reported that it is worth $50.

Not everyone -- or every card offer -- will get a "Karma Guarantee." (I didn't see any when I checked at the time of writing this article.) Be sure to check your offer's fine print before applying to see if you qualify for the "Karma Guarantee."

It's worth noting here that you probably shouldn't apply for a card you know you won't get just to get money from Credit Karma. A credit card application involves a hard credit pull, which can damage your credit score.

In addition to the new "Karma Guarantee," Credit Karma has revamped its recommendations to use somewhat more vague language. Now, instead of being "preapproved" or having "90% odds," it uses language like "fair," "good," or even "outstanding" to describe your approval chances. The site also has a new page dedicated to explaining what these odds mean -- and clarifying that they're definitely not guarantees.

If after all this you're done with Credit Karma entirely, you have other options to check your credit score for free. Perhaps the simplest is your existing credit cards; most card issuers offer free credit scores to their cardholders.