When my friend Melissa told me she was helping with a new Web site, Credit Karma, I was rather surprised to hear about it. I mean, another site about credit scores? On request, she arranged for me to send some questions along to the CEO, Kenneth Lin, and here are my pointed questions and his responses.
Q: Another online credit reporting site? What’s new?
Credit fatigue is understandable – it seems that you hear about the importance of credit everywhere you turn. But the truth is that credit, and subsequently your credit score, is the single most important financial indicator used by lenders, and in today’s economy it’s more relevant than ever.
The great thing about it is that you can actually control your credit score – you can protect and improve it with just some basic knowledge and tools. The problem is that consumers just haven’t had access to the right kind of tools before.
Credit Karma helps consumers monitor, improve and leverage their credit. We are the only service that allows people to pull their credit score as often as they need for free. We have also built simulators and tools that help them understand how specific actions such as opening or closing a line of credit will affect their score. And finally, we bring them preferred pricing offers based on the strength of their score that they can also rate as a community. Most importantly, we never share consumers’ information.
Q: I think there’s a lot of confusion in the consumer space vis-à-vis credit scores. Federal law requires that credit reporting agencies make your report available to you every 12 months or any time you have a credit app denied. Why Credit Karma?
We absolutely agree that there’s a lot of confusion in the marketplace. That’s why we’re in this business: to help consumers better understand their credit and how to leverage it for their advantage.
Between the federal mandate, pay-for-score services, and identity theft protection companies, consumers are bombarded with messages about the importance of credit scores. The good thing is that consumers are now hyper-aware and realize they need to know their score. The challenge is that consumers should be obtaining their score about once a month in order to catch any changes caused by missed bill payments, an incident of identity theft or similar…and they couldn’t do that before Credit Karma.
Not only do we let them access their score as often as they’d like for free, but we also provide simulators and information to help them understand the best way to improve their score and even predict what it will be as a result of a specific behavior. Finally, we help them obtain preferred pricing on products they desire as a result of that score. It’s a completely free and transparent way for consumers to better manage and leverage their credit.
Q: What’s your background in finance and banking and what attracted you to credit scores?
I’ve been in the industry for a number of years. I’ve worked for credit card companies, led marketing teams at both Upromise and E-LOAN, and even launched my own online marketing analytics firm before founding Credit Karma. All of this has given me a deep understanding of how credit works and how lenders use credit data to make lending decisions.
My inspiration stems from my experience at both Upromise and E-LOAN, two companies with a pro-consumer mission that aimed to transform an industry and help consumers in the process. I realized then that consumers had only the most basic awareness of their credit score and that the opportunity existed to build a business on helping them learn more and be better informed credit customers. Everything we do at Credit Karma – even the way in which we make money – is done with a consumer’s best interests in mind.
Q: Credit scores rarely take into account life stories. How are you going to help people manage their credit score and, ideally, improve it so they have greater access to financing and mortgage options?
Our first step is to help people access it and then to help them understand what it means by sharing information resources and comparing their score to others in their age, geographic or similar groups. Just this first step is important because it often inspires them to try and improve it.
We help them improve their score through simulators that can instruct personal behavior. For example, if you’re late on a major credit card, we can help you predict what your score will be by taking care of that outstanding balance. Or perhaps you’d benefit by taking out another revolving line of credit. The point is to give you tangible things that will make a difference so you can begin to adjust your behavior. For most people, there is a number they need to reach so it’s easy for them to create a plan and stick to it.
Q: How does Credit Karma make money? And is there a tension and potential conflict between offering up “pro-consumer” advice and information while simultaneously possibly helping people dig themselves deeper with credit card offers?
Our business model relies on giving consumers good offers through our advertisers. We need to provide them with relevant, real and compelling pricing offers. There is no tension in this model because we take our pro-consumer bent seriously. We do not accept advertising or work with companies that take advantage of consumers. You will never see ads from payday lending companies or others who perpetuate debt and poor credit. And because we allow users to rate offers and help us fine-tune our offering for other consumers similar to them, we can isolate only those offers that are actually useful and relevant. It’s a highly efficient process both for our users and for the advertisers.
Q: What is the return rate for web customers?
The return rates vary, and really depend on whether a consumer is getting ready to make a credit-based purchase. We have visitors that check almost every day and those who check once every couple of months. On average, we see about 3 visits per month per active user.
We recommend that consumers check their score about once a month. Our empirical data shows that a score changes about once every 30 days, which makes sense because it mirrors most billing cycles. We encourage users to check once a month so that they can determine if they accidentally missed a bill or even if there is unauthorized activity on their credit file.
Q: Are there privacy concerns? Are you exposing consumer credit scores to sponsors, how do consumers with high credit scores get access to the offers?
We never share information with sponsors or advertisers. We take our pledge to consumers seriously and have built in redundant layers of security and policies to ensure that their information remains private. You’ll see that much of the feedback from consumers about Credit Karma attests to this. All of our pricing offers are one-way offers based on credit score ranges, not actual scores or individuals. A sponsor never knows who is receiving the offer and has no way to contact that person directly. We make sure that ultimate control always resides with the consumer.
What do you think, reader? Is there a compelling case for Credit Karma in the online credit and personal finance space?