How Does Credit Karma Work and Make Money?

Last updated: May 19, 2020

Company: Credit Karma
CEO: Kenneth Lin
Founders: Kenneth Lin, Nichole Mustard, Richard Graciano
Year founded: 2007
Headquarter: San Francisco, CA
Number of Employees (FY2019): 700
Type: Private
Annual Revenue: estimated $500 million

Table of Contents

Introduction

Credit Karma is an online personal finance company that provides free credit scores and reports from the national credit bureaus TransUnion and Equifax.

Credit Karma allows users to see changes to their credit score as well as inquirers and marks to their score.

The company also provides users with tools to help monitor and improve their credit score, such as offering individual financial recommendations based on a person’s credit profile. Credit Karma first launched a Credit Score Simulator, which suggests potential financial actions for a user’s credit score and its impacts.

Throughout its founding, Credit Karma has come out with different tools and services to benefit users with their credit monitoring, and building.

One of their first unique services was a My Spending Tool that allowed users to track their banking through Credit Karma. Users can check their credit card and loan balances and their transaction history within the website. The financial company also holds forums, blogs, and financial product reviews where users can read other’s experiences with different financial tools.

To gain more users and encourage more people to learn about their financial backgrounds, Credit Karma started a #My Money Story campaign in 2015. This campaign offered people a chance to share their experiences with money and finances on social media (Facebook, Twitter), usually a taboo subject. The company even created several short films about the people who shared and their financial stories and experiences.

Additionally, Credit Karma introduced its online tax preparation service called Credit Karma Tax in 2016. The service allows users to file federal and state taxes through Credit Karma with no costs. The following year, Credit Karma announced that it had filed $1 million tax returns in its first tax season.

In 2017, the Credit Karma introduced the popular service Unclaimed Money, initially only in seven states. The services help customers find unclaimed money like refunds and insurance payouts. Now, people all throughout the United States can use Unclaimed Money to discover money that might be sitting around.

Throughout the years, Credit Karma has acquired multiple companies under their names, such as app developer Snowball, mortgage and personal finance companies, money reclamation services, and even a United Kingdom-based credit report service in 2019.

The founder and now CEO of Credit Karma, Kenneth Lin, also founded a marketing company called Multilytics Marketing and worked with other financial startups like E-Loan and Upromise before launching Credit Karma in 2007.

The website for Credit Karma went live in early 2008, and initial investors in the company were CEO of Prosper Chris Larson and former president of E-Loan Mark Lefanowicz.

Two years after its development, Credit Karma secured and closed its first round of funding with $2.5 million. In 2013, the company obtained an additional $30 million in funding through Ribbit Capital. Through 2014 and 2015, Credit Karma gained over $160 million through new and existing investors, including Google Capital, Tiger Global Management, and Susquehanna Growth Equity.

As of 2015, Credit Karma has raised $368.5 million in financing at a valuation of $3.5 billion.

In Feb 2020, Intuit has announced its plan to acquire Credit Karma for $7.1 billion.

How Credit Scores Work

Almost everyone understands that in today’s world, a person’s credit score is more than just a number. A credit score impacts a person’s ability to obtain loans, credit cards, and even jobs and housing. Reviewing and understanding your credit score and report regularly is important to many aspects of financial independence and security. It is essential that people can review their credit score and its accuracy but also find a way to improve their score.

Every person has the right to a free credit report from credit-reporting companies every year as dictated by Federal law.

The three big credit agencies are Equifax, Experian, and TransUnion, which report to agencies a person’s score.

Before Credit Karma, consumers had to apply through an official credit-reporting site to see their official report, but the report never included a score, the significant financial figure that affects a person’s financial abilities. Consumers had to purchase their score straight from each individual agency, which began to add up when they wanted to obtain their score.

How Credit Karma Works ?

Now with Credit Karma, consumers have free, continuous access to their credit scores and reports from two of the main credit agencies, TransUnion and Equifax. You can sign up for Credit Karma on their website creditkarma.com without registering a credit card and with your basic information.

Members can track their credit scores as frequently as they like without having to pay for it. Additionally, Credit Karma offers many free online services and information to help people understand their scores. When you’re a member, you can find personalized suggestions to improve your credit scores, such as how to reduce your credit use and increasing on-time credit card or loan payments.

How is Credit Karma free?

Credit Karma’s main business model is simplicity and transparency.

The company’s mission is to increase awareness and help understanding of credit scores to all people.

Credit Karma strives to help people gain an understanding of their own financial security and wellbeing, putting it in the hands of the consumers.

In a 2014 Q&A on the forum website Reddit, Credit Karma CEO and Founder Kenneth Lin stated, “Scores were built for lenders and statisticians. Consumers were not the intended audience.” “The only loser in that equation was the bank that was charging customers too much.”

Credit Karma’s Business Model?

Wondering how does Credit Karma make money while giving consumers their credit scores for free?

As Credit Karma is a business looking to make profits, they earn their main revenue through advertisements.

According to their websites, revenue comes in through targeted advertising with financial companies on the website. Their business model is built on providing suitable options for all parties where the consumers, the financial institutions, and Credit Karma all benefit.

As of 2019, Credit Karma’s memberships surpass 85 million according to their most recent statistics. The company’s technology uses specific algorithms and analysis to select advertisements according to relevance and users.

For the advertisers, it results in better matches to consumers most likely to engage or use the service. Credit Karma earns money through the arrangements with their financial advertising partners.

Through credit report assessments, Credit Karma can suggest products based on history, searches, and individual information. The technology uses a person’s credit score and history to decide which products to suggest, such as credit cards, loans, and insurance.

“If you take advantage of that opportunity, we should make money, you should save money, and the bank should get a new customer,” Kenneth Lin stated later in the Reddit Q&A.

Final Thoughts

The online personal-finance company guarantees to make credit accessible and understandable. Credit Karma allows people to check their credit reports and scores for free and extends several tools and services based on an individual’s profile.

Credit Karma earns revenue through fitting consumers with personalized product advertisements based on their credit profile and probability of approval.

References & more information