Smart consumers know their credit score affects their ability to get a loan, their mortgage rates, credit card approvals, and even a job or housing application. So it’s a good financial habit to review your credit report and score frequently – for accuracy and to identify ways you could improve your score, if necessary.

It’s possible to purchase access to your credit reports, scores and monitoring services through each of the big three credit-reporting companies – Equifax, Experian and TransUnion  – but these can involve hefty monthly fees, and “free trials” often have opaque fine print. Federal law mandates that everyone has the right to one free credit report from each agency every 12 months, if you request it. (You have to apply through AnnualCreditReport.com, the official credit-report site, and your score isn’t included in the free package.) 

Credit Karma, a San Francisco–based company founded in 2007, has shaken things up by offering free ongoing access to your credit scores and credit reports from TransUnion and Equifax. You sign up with creditkarma.com, but do not have to register a credit card as you often must for free trials on other sites.

Once you’re a member, you can track your credit as often as you like. Credit Karma also provides free online tools and information to help you understand your score, with specific actions, based on your profile – say, reduce your credit utilization or improve your on-time payments – that you can take to improve it.

Why Make All This Free?

Credit Karma has made transparency central to its business model: “The company was founded with the belief that consumers should have access to their data for free,” according to a spokesperson. “After all, it is their data, and they’re judged by it in nearly every facet of their lives.”

Another part of the mission is helping people understand their own financial health. “Scores were built for lenders and statisticians,” Credit Karma founder and CEO Ken Lin points out. “Consumers were not the intended audience.” Credit Karma aims to demystify credit for the average person.

So What’s the Business Model?

Since Credit Karma is a for-profit business, not a charity, how does it make money? Rest assured, it’s not from selling the information you share in order to get your credit reports from its site. According to the description on the company website, its revenues come from tailored, targeted advertising by financial companies on creditkarma.com. Its business model is based on finding a win for everyone – the consumer, the financial institutions that advertise products and Credit Karma’s own bottom line.

Credit Karma surpassed 60 million members in November 2016, and recently launched in Canada. It has the ability to do robust analysis and use algorithms to select relevant ads to specific people. To financial advertisers, this means that the site is able to better match them with consumers who are more likely to use their services. Based on agreements with its financial advertising partners, Credit Karma gets paid for this lead generation. 

Here’s How it Works

When Credit Karma pulls your credit reports, it can see how much you are currently paying for loans or credit card debt and can suggest credit cards, auto loans and insurance, personal loans or other banking products that would save you money – and for which someone with your credit score and history is likely to be approved. “If you take advantage of that opportunity, we should make money, you should save money, and the bank should get a new customer,” is how Lin put it in a December 2014 Reddit Q&A. “The loser in the equation was that bank that was charging too much.” 

The Bottom Line

Credit Karma is an online personal-finance platform that lets consumers monitor their credit reports and scores for free, while offering them tools  – and suggestions based on their credit profile – to improve them. It gets compensated by financial companies which pay to get "matched" with consumers as tailored product ads —based on their credit profile and high likelihood of being approved — are presented to users. 

 

 

 

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