Credit Karma Business Model | How Credit Karma Makes Money?

Credit Karma provides free access to these scores by generating revenue through targeted product advertisements for loans and credit cards based on an individual’s credit record. 

Consumers benefit from advertisements because they are limited to products that match an individual’s credit profile. 

These products are categorized and highlighted according to the likelihood that a customer’s application will be accepted.

Credit Karma business model is based on the idea of providing effective solutions for every stakeholder, which includes its customers, financial institutions, and Credit Karma.

Credit Karma provides this service through personalized recommendations and a credit card and loan search and comparison engine. 

Companies pay Credit Karma to market their items on this engine, and Credit Karma charges a fee for lead creation. Credit Karma asserts that it does not sell, rent, or exchange its users’ information.

Businesses presenting their products on Credit Karma’s search and comparison engine adds value for individuals seeking to learn their credit score, as these consumers may then evaluate credit items that have been pre-selected to meet their credit profile. 

Consumers can access this added value via Credit Karma’s search and comparison engine or through the suggestions area of their profile. 

This suggests that Credit Karma’s business model for clients who enter data is triadic and multi-sided.

Along with its primary business model, Credit Karma gives its users a suite of ancillary services, including tracking credit card and loan activities and balances; forums for financial product reviews and credit guidance; and debt payback, house affordability, and simple loan calculator tools.

What is Credit Karma?

Credit Karma is a personal finance startup best known for offering free credit scores. It enables customers to gain access to their credit information at any time. 

Additionally, the organization analyzes a person’s credit health regularly and makes recommendations on enhancing their score.

Credit Karma generates revenue from its services through referral fees, interchange fees, and interest on cash.

Credit Karma Business Model

Credit Karma was founded in 2007 and has grown to be a huge success. Over half of all millennials in the United States now utilize the program. 

The company’s sustained performance resulted in its acquisition by Intuit in 2020 for a total of $7.1 billion in cash and equity.

Company NameCredit Karma 
Company TypePrivate
FoundersKenneth Lin
ProductCredit Karma
Founded DateMarch 8, 2007
HeadquarterSan Francisco, California, United States
Location ServedUSA

Credit Karma provides individuals with access to TransUnion and Equifax credit scores and other credit information, as well as tools to help them improve their ratings.

Credit Karma’s information is available to users for free and as frequently as they choose, without the need to register with a credit card. 

In comparison, the three major credit agencies provide individuals with entire credit score information for free once a year and charge for additional requests.

Credit Karma earns money by proposing financial goods such as credit cards based on your credit data and earning a commission if you purchase one of the recommended products. 

Credit Karma recently expanded by partnering with MVB Bank to offer free tax preparation and a high-yield savings account.

How Does Credit Karma Make Money?

Credit Karma is a FinTech firm whose mission is to make credit data more transparent and accessible to consumers.

Consumers can sign up in a matter of minutes via Credit Karma’s website or one of their mobile applications (available for Android and iOS smartphones).

Once everything is configured, individuals can gain access to their credit scores for free. Credit scores are used to assess an individual’s eligibility for various financial goods such as loans or credit cards. If a borrower’s credit score is too low, a lender may deny their application.

Consumers now have free, ongoing access to their credit scores and reports from two of the major credit bureaus, TransUnion and Equifax, through Credit Karma. 

Credit Karma’s website allows you to sign up without enrolling in a credit card with only your basic information.

Credit Karma also offers a free credit report and credit monitoring in addition to the credit score.

Members are not charged for monitoring their credit scores as frequently as they choose. 

Additionally, Credit Karma provides numerous free online services and information to assist individuals in comprehending their credit ratings. 

When you join, you’ll receive personalized recommendations on enhancing your credit scores, such as ways to limit your credit use and increase your on-time credit card or loan payments.

Credit Karma Business Model

The report covers data such as the number of accounts in good standing and the proportion of on-time payments. 

Additionally, the report may notify someone if their identity is suspected of being stolen and utilized without consent.

Credit monitoring enables individuals to maintain control of their credit scores by notifying them when significant changes occur.

Credit Karma obtains data from Equifax and TransUnion, two of the three major consumer credit bureaus in the United States (excluding Experian). The credit data is based on the 2013 version of the VantageScore 3.0 model.

Credit Karma Business Model

As a for-profit corporation, Credit Karma generates the majority of its revenue through advertising.

According to their websites, revenue is generated through targeted advertising with financial institutions. 

Their business concept is based on giving beneficial solutions for all stakeholders, including customers, financial institutions, and Credit Karma.

According to Credit Karma’s most recent figures, the company’s membership base has surpassed 85 million. 

The company’s technology employs sophisticated algorithms and analysis to prioritize adverts based on their relevancy and relevance to users.

For advertisers, this results in more precise targeting of consumers who are most likely to engage with or utilize the service. Credit Karma is compensated for its services by financial advertising partners.

Credit Karma can recommend items based on your history, searches, and personal information via credit report assessments. 

The system determines which goods to recommend based on a person’s credit score and histories, such as credit cards, loans, and insurance.

How Does Credit Karma Make Money?

Credit Karma earns money through an interchange and referral fee-based business model. Additionally, they earn money by charging interest on cash loans, which is standard practice at larger financial institutions.

Credit Karma also earns money from its services through referral fees, interchange fees, and interest on cash.

Interchange Fees

Credit Karma announced in September 2020 that it would launch its first-ever checking account (called Credit Karma Money). The account is accompanied by a Visa debit card.

When you pay with a debit card, you will be charged an interchange fee. These costs are typically less than 1% of the purchase price and are paid by the merchant that accepts the payment.

Credit Karma also receives a cut of this fee—although it is not disclosed publicly.

Referral commission

Credit Karma’s principal source of revenue is referral commission. While Credit Karma is completely free, it does offer in-app advertising for relevant financial goods such as credit cards or loans. 

Credit Karma receives a referral fee from the advertising partner whenever a user takes action on an offer.

Twitch Business Model

Although some customers complained about the in-app advertising, Credit Karma persisted with the approach, which is working well. 

While some users may find this technique unethical, Credit Karma compensates for its misdeeds by providing a slew of free services to its subscribers.

Among the useful features on the official website are a convenient tax calculator and a dispute response mechanism that enables customers to file complaints if they believe the credit bureau is undervaluing their credit score.

Interest On Cash

Credit Karma operates similarly to a traditional bank. They use the funds in their users’ accounts to lend to other institutions, such as the banks mentioned earlier. 

Credit Karma then accrues interest from these financial institutions (also called Net Interest Margin).

Credit Karma Business Model

According to Statista, the net interest margin for all US banks in 2019 was equivalent to 3%, or $3 billion in 2009 money values. 

Accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to a maximum of $5 million.

What is the Funding and Valuation of Credit Karma?

Crunchbase reports Credit Karma has received $868 million in venture capital funding throughout eight rounds. Companies such as Tiger Global Management, Founders Fund, Google Capital, Silver Lake, and Felicis Ventures have invested in the company.

Wikipedia Business Model

Credit Karma was valued at $7.1 billion by Intuit when it announced its acquisition. Kenneth Lin, CEO of Credit Karma, will continue to lead the company independently.

What is the Revenue of Credit Karma?

Credit Karma reportedly generated annual revenue of more than $1 billion in 2019. This is a 100 percent increase over the company’s unaudited revenue of about $500 million in 2017.

Success Story of Credit Karma

Credit Karma was created in 2007 in San Francisco by Kenneth Lin (CEO), Ryan Graciano (CTO), and Nichole Mustard (CRO).

Lin moved to the United States from China when he was four years old. He was raised in Las Vegas by parents who worked in blue-collar jobs. Lin was the first member of his family to acquire a college degree in Economics from Boston University.

Lin worked in a variety of capacities in the consulting and financial industries following college. Meanwhile, he continued to experiment on the side with company concepts.

One of his concepts involved purchasing computer components at wholesale costs and reselling them online. Later, he flirted with the idea of creating an internet café in Harvard Square, Boston.

Finally, in 2007, he leaped faith and co-founded Credit Karma with Graciano and Mustard.

Credit Karma was founded as a result of his frustrations with obtaining his credit score. Similar services existed at the time but had a questionable reputation at best.

Consumers have been duped over the years by websites selling “free” credit reports that came with more than a few strings attached. After subscribing for these ostensibly free reports, those deceptive websites would begin billing unsuspecting visitors every month once their trial periods expired.

Credit Karma debuted its platform in that environment in March 2008. Additionally to the unpleasant stigma, the financial crisis was raging, making it difficult to raise any type of capital.

Consumers immediately took to the platform. Major news organizations such as CNN and CNBC covered the launch. What’s the catch? None. Credit Karma was, in reality, completely free of charge with no hidden fees.

However, not everything was perfect during those days. Simultaneously, in 2008, Credit Karma got a 30-day notice to terminate its commercial arrangement with TransUnion, via which Credit Karma obtained credit score data.

Credit Karma would be left without a trustworthy supply of data for a credit rating if that critical link ended. Lin sent an email to John Danaher, president of the agency’s consumer arm, TransUnion Interactive.

He emphasized the startup’s potential and all the benefits it may give TransUnion in the future in the email. Fortunately for the team, TransUnion agreed to discontinue its notice and instead focus on expanding its collaboration with Credit Karma.

Credit Karma announced its first round of fundraising a year later, raising $2.5 million from Founders Fund, SV Angel, and other investors.

Credit Karma continues to grow in the following years by collecting further capital, adding new services such as a tax calculator, expanding into new verticals (for example, mortgages), and acquiring eight firms (such as Claimdog in 2017 or Noddle in 2018).

Rumors of an IPO persisted for nearly half a decade but were put to rest when software giant Intuit announced in February 2020 that it would acquire Credit Karma for a record $7.1 billion in cash and stock.

How Fetch Rewards Makes Money?

In July 2020, the United States Department of Justice (DOJ) initiated an investigation and began looking into potential antitrust violations.

More precisely, Intuit, which owns TurboTax, might eliminate Credit Karma’s free tax calculator, which remains one of the company’s primary competitors.

As a result, Credit Karma chose to sell its tax business in the future. Square announced in November 2020 that it would acquire the tax business unit for $50 million.

Soon afterward, the Justice Department approved Intuit’s acquisition of Credit Karma.

Simultaneously, Credit Karma began accepting applications for its first checking account (along with a debit card powered by Visa). This places it directly in competition with rival neobanks such as Chime or Dave.

Credit Karma now employs more than 2,000 individuals in offices throughout the United States, the United Kingdom, and Canada. Their platform has over 110 million users, including about half of all millennials in the United States.