Founded in 2007, Credit Karma is a US-based personal finance company. The company offers its users financial management and free credit platform. It also provides free tax preparation services, a tool to identify and dispute credit report errors, and monitoring of unclaimed property databases. The company currently operates in three countries, including the US, the UK, and Canada.
Credit Karma has generated billions in fundings over the years. These funds included Series A, B, and C financing from various investors. Furthermore, Credit Karma also acquired several companies throughout the years. The company also reported over 100 million members that it has accumulated over several years. Credit Karma’s successful business model was why Intuit acquired the company for $7.1 billion in 2020.
Credit Karma primarily offers free credit scores and credit reports for users over the three countries. These reports are from national credit bureaus TransUnion and Equifax. On top of that, it also offers daily credit monitoring services from TransUnion. Other primary services include free tax filing, credit cards, identity theft protection and credit tools. Similarly, it makes tailored financial recommendations based on each user’s credit profile.
Credit Karma is well-known among its users for its free services. However, the company still makes money through target advertisements for financial products. Similarly, the company makes money from lenders for every recommendation the company makes. Credit Karma’s business model has been highly successful for the company and helped generate billions in revenues.
Credit Karma provides its services throughout the year and free of charge. In contrast, other major credit bureaus only provide complete credit score information for free once a year. Some of its immediate competitors include NerdWallet, Mint and Credit Sesame. Overall, the company provides a set of tools that helps users with their finances and improving their credit scores.
How does Credit Karma work?
Credit Karma is one of the leading names in the fintech industry. The company specializes in the financial well-being of its users. The company focuses on providing users with total credit transparency. Users can get started on this platform by signing up for free. They can use Credit Karma’s software through mobile apps or its website.
Once users sign up on the platform, they can immediately access their credit information. The company does not require users to link their credit cards on the platform. Therefore, users do not have to worry about any hidden or unprompted charges. Based on their credit information, Credit Karma also provides recommendations for various related credit services.
As mentioned, users can use Credit Karma’s tools throughout the year without any restrictions. For example, they can view their credit score at any time without any repercussions to their current scores. This process works differently compared to other platforms or credit bureaus. When individuals want to use those bureaus to check their credit scores, it adversely impacts those scores.
However, Credit Karma’s services don’t only include free credit scores. It also offers a range of other related services. These include free credit monitoring and free credit reports. The monitoring tool provides information about any third parties that want to access a user’s credit information. This tool also helps notify users about any identity theft or fraud attempts through users’ credit information.
Credit Karma also offers a tool that helps users check their credit health. Similarly, the company partners with TransUnion and Equifax as its credit bureau partners. Credit Karma also analyzes users’ credit information internally. However, the company does not sell the information to third parties.
Instead, Credit Karma uses users’ data to analyze their credit profiles. Once they do so, they make recommendations to users. These recommendations serve to help users save money. On the other hand, Credit Karma also gets a commission if users follow through with those recommendations. This way, both parties benefit from the deal.
What is Credit Karma’s business model?
Credit Karma’s business model includes a combination of various models. The company earns revenues from several sources. Primarily, Credit Karma makes money through a variation of the Consumer-to-Consumer (C2C) business model. Through this model, the company provides a platform for its users and various financial institutions to connect.
Similarly, Credit Karma’s business model also falls under the advertising business model. The company’s primary source of income includes target advertising to users. These advertisements come in the form of recommendations made by the company. However, the company does not earn advertising revenue. Instead, it only makes money when users choose to follow those recommendations.
Apart from that, Credit Karma also uses a business model similar to some financial institutions. The company offers various financial services, such as checking accounts and debit cards. Users can use these facilities, allowing the company to earn money from them. However, these are not the primary source of income for the company.
How does Credit Karma make money?
As mentioned, the primary source of income for credit Karma includes commissions from referrals. However, that does not constitute the overall revenues that the company generates. These revenues also consist of transaction fees and interest on cash loans. All of these sources combined help the company generate billions in revenues each year. A brief description of what each of these sources includes are as below.
Referral Commission
Referral commission constitutes the primary source of income for the company. As mentioned, the company offers its services free of charge to users. However, it still makes money through financial institutions and lenders. The platform offers users recommendations based on their credit scores and information. These recommendations include lenders or parties from whom users can obtain loans or other services.
Every time a user goes through with Credit Karma’s recommendation, the company charges the lender a fee. The company does not disclose how much fee each partner has to pay. However, these commissions accumulate to help the company make billions in revenues. However, some users may not go through with recommendations. For those, the company does not make any money.
The recommendations constitute target advertising toward users. Some users may be reluctant since it involves Credit Karma analyzing their credit information. On top of that, some others consider this model to be unethical. The company boasts free services. However, users may believe it also sells their data to third parties.
Transaction fees
Credit Karma also offers its users financial services through online checking accounts. The company also issues its users with a debit card, which comes under the Credit Karma Money segment. Users can use this debit card to access online checking accounts or pay for goods and services. In terms of usage, this card does not differ from any other payment card.
Credit Karma makes money from these services through transaction fees. The company charges users a fee for every transaction it processes. However, these fees are minimal in value. Despite that, the volume of transactions can add up over time. Usually, the company charges processing fees that are lower than 1%.
Interest on cash
Credit Karma uses the cash in clients’ accounts to provide loans to financial institutions. This process does not affect the users or their balances. However, it provides a side income for the company. The company operates a similar interest on cash model like other financial institutions. Credit Karma receives interest on any loans provided to institutions clients.
The company does not disclose the exact interest charges for these clients. However, this source also contributes significantly to the company’s overall revenues earned. This process does not involve users directly. Instead, these transactions occur between Credit Karma and its institutional borrowers.
Conclusion
Credit Karma is a company that operates in the fintech industry. The company offers services in the US, the UK, and Canada. Credit Karma’s business model includes a combination of several models. Similarly, the company makes money from three primary sources. These include referral commissions, transaction fees, and interest on cash.
