Credit Karma truly changed the game a few years ago when they began to offer free credit reports. They also give you your credit score for free. Prior to this, you had very few options for accessing this important information. Now, thanks to their innovation, you can easily access your credit report and scores for free in several locations. But if they do this for free, then how is it that Credit Karma makes their money?

Credit Karma Changed the Game

Not too many years ago it was relatively challenging to access your own credit information. The credit companies seemed to obfuscate this information. It all felt like a big mystery to many consumers.

Of course, you could get your free annual credit report from each of the three major reporting agencies. However, you could only do that once per year. While accessing your free credit score felt a little bit easier, it was still a challenge.

It’s all different today. When you log in to your credit card accounts online, you often immediately see your FICO credit score. You can also easily access it, as well as your free credit report, from a number of sources. Credit Karma played a key factor in changing the world in this way. It’s been to the benefit of consumers who are now increasingly empowered to take control of their own finances thanks to the access they now have to this information.

Is It Really Free?

One of the big questions that people immediately ask is whether or not it’s truly free to get your credit report and credit score through the company. It is.

The reason people are wary is because historically “free” hasn’t actually meant entirely free. Other companies before Credit Karma offered “free credit reports.” However, you had to sign up for credit monitoring services with them. Technically, you could join a free trial, get your credit score and then cancel before you paid anything. However, canceling was often challenging, if you remembered to do it at all. Therefore, you ended up paying for the credit score after all. (Well, you paid for credit monitoring, but since you didn’t want it in the first place, you paid for what you did want, which was the “free” credit score.)

Credit Karma simply does not operate this way. You don’t have to give them any money. You don’t even have to give them a credit card that they could potentially charge money to. You enter your information and they give you your credit report and credit score for free.

If It’s All Free, How Does Credit Karma Make Money?

This company is a terrific example of the difference between a finance company and a finance company. Finance companies make their money primarily in dealing with money. Fintech companies, on the other hand, emphasize the “tech.” They offer innovative Internet-based solutions to problems. They provide tools that help with your finances. This is how they make their money (through a variety of channels.)

Credit Karma Got Capital Investment

First of all, when it was a young company, it operated like a tech company. In other words, it got venture capital. For example, in 2014, Google Capital gave the company $85 million in order to roll out new products. One of the key new products at that time was the ability to offer free credit reports. (They had already been offering free credit scores for six years.)

According to the VentureBeat article announcing that deal, Credit Karma pays out tens of millions of dollars annually to access those credit reports/scores. And yet, they (and their investors) believed that it would be financially worth it to make that investment.

Speaking of their investors, Google Capital wasn’t the only company to fund Credit Karma. Investopedia reports that they received nearly $900 million from eight rounds of funding over the years, although the most recent round was in 2018.

Credit Karma Makes Money Off of Advertising Products

Like many websites, this one has ads on the site. Moreover, they offer a variety of products and services to their customers. You don’t simply go on the website, get your credit score, and leave. Instead, you have the opportunity to access a wide variety of different services and tools that can improve your credit. If you use them correctly, it’s a win-win. You improve your credit score and the company gets a small fee any time that you utilize the services advertised on their site.

Like with so many other websites, if you click through to something that interests you on the site, you have the opportunity to purchase it. If you do, Credit Karma makes a little bit of money. The company has more than 100 million registered users, over 35 million of which are active monthly users. Those little bits add up for the company. So, for example, if you see a credit card offer on Credit Karma that you like, and you click over to it and decide to apply, then Credit Karma benefits. But you didn’t pay anything.

Intuit Purchased Credit Karma

Credit Karma has continued to do well over the years indicating that users appreciate what they have to offer. One of the things that they started to offer more recently was tax preparation services. So, it’s no wonder that Intuit – known in particular for owning TurboTax – took notice. In 2020, they announced that they will be purchasing Credit Karma for more than $7 billion. It’s their largest acquisition ever, meaning that they certainly think that there’s financial profitability here.

Interesting, Intuit also owns Mint. Mint and Credit Karma offer many of the same services. Both are personal finance companies that offer free credit scores through an app-based / web-based service. That said, Mint tends to focus heavily on assisting you with understanding and improving your credit. Credit Karma does something similar but emphasizes the free credit report and other services such as tax prep. It will be interesting to see over time how the time are similar and different now that they’re both under the Intuit umbrella. That said, currently Intuit plans to continue to have Credit Karma operate as a standalone service.

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