It seems too good to be true: Credit Karma will provide you with your credit score absolutely free. All you have to do is sign up at creditkarma.com, and you can see your credit score immediately. Still, everybody has heard the cliché, “You get what you pay for.” Is a free credit score really worth giving up your personal information, especially in an era when hackers are alarmingly successful at getting their hands on that personal data? Does the score hold up against what creditors would use to judge your credit worthiness? Here’s a look at what Credit Karma provides and whether it is worth using its credit score service.
The Credit Karma Model
Credit Karma, according to its website, believes that you have a fundamental right to know and view your credit score. Armed with this knowledge, you’re more likely to pay your bills on time and avoid going into collections for debt, and you might waste fewer resources of the companies with whom you do business. In other words, if you know your score, you’re better off and so are those companies because they don’t have to spend money and time trying to collect what you owe them. Everybody wins!
However, it’s not entirely an altruistic effort. Credit Karma is a for-profit business. It is offering you something for free, but it is making money elsewhere.
The company’s revenue model for customers, posted online, reads: “When you access the free credit score, Credit Karma will show personalized offers to you based on your credit profile. These offers are from advertisers who share our vision of consumer empowerment. If you wish to take advantage of our offers, it is up to you. Credit Karma tries to give the power and the choice back to the consumer.”
Credit Karma makes its money in two ways. First, along with your credit score, it places advertisements on the page and hopes that you will respond to those ads.Second, because Credit Karma is pulling your credit score, its system knows a lot about you, and it can carefully tailor ads to your spending habits. More targeted ads are better for advertisers since they don’t waste money putting ads in front of people who would never use their services and usually allow the advertising company to charge more per ad. With more than 40 million active users, Credit Karma has a healthy revenue model.
In sum, Credit Karma makes money by giving you a free score in exchange for learning more about you and charging advertisers to put ads in front of you.
Is Your Credit Score Accurate?
Now that Credit Karma’s motivation for offering free credit scores is clear, it’s possible to judge the quality of the scores. If its business model relies on you returning to the site often, offering you an accurate, legitimate score is obviously good business for them.
Nonetheless, we asked Credit Karma, “With all of the different scores out there, why should consumers trust that Credit Karma is providing a score that can be relied upon as an accurate representation of their creditworthiness?”
“The scores and credit report information on Credit Karma come from TransUnion and Equifax, two of the three major credit bureaus,” said Bethy Hardeman, chief consumer advocate at Credit Karma. “We provide VantageScore 3.0 credit scores independently from both credit bureaus. Credit Karma chose VantageScore 3.0 because it’s a collaboration among all three major credit bureaus and is a transparent scoring model, which can help consumers better understand changes to their credit score. In 2014, over 2,000 lenders, including six of the ten largest banks, used nearly one billion Vantage Score credit scores to judge consumers’ creditworthiness.”