Credit Karma had a problem. How does a financial-services company win the trust of a generation that just lived through a financial crisis? And a new, online company that asks for your personal information, at that?
Today, a decade after its launch, Credit Karma claims 75 million members, including almost half of all U.S. millennials and a third of all Americans with credit reports. The private, San Francisco-based company, which says it has been profitable for the past two years, recently revealed that its revenue jumped 50 percent last year, to more than $500 million.
Now the site, known mostly for giving out free credit scores and helping people find auto loans and credit cards, wants to remake Americans’ financial lives from top to bottom, and it’s starting with two of the most complicated and unpleasant tasks of all: filing taxes and getting a mortgage.
This year the company launched both a free tax preparer and a new service to streamline the process of securing a home loan.
“Our goal is to be the best product [in] the whole spectrum of financial-services products that consumers could use help on,” founder and Chief Executive Officer Kenneth Lin said. “There is a real opportunity in this space to change consumer finance.”
Among Credit Karma’s competitors: NerdWallet, Credit Sesame, and Credit.com.
Banks pay Credit Karma every time a user of its site is approved for a credit card or loan. The key is to recommend the right products to each customer, and that requires collecting lots and lots of data. Every day, the site collects 2.5 terabytes of information on its members, then runs billions of calculations to find products that suit their needs and creditworthiness. Members hand over personal information, including Social Security numbers, giving access to their credit bureau files.
For that business model to work, consumers need to trust Credit Karma. At first that was a tough sell. The site was having trouble catching on with consumers at the same time that the recession and its fallout had made banks reluctant to lend. “We literally almost went out of business,” Lin said.
There were obvious solutions that he resisted. He could have made millions of dollars by selling his customers’ data to third parties, or by promoting products like exploitive “credit repair” services, but refrained. Credit Karma was careful not to spam members with incessant emails.
“This is the slippery slope many companies go on,” said Nichole Mustard, chief revenue officer and a co-founder. “Ultimately you lose the trust you’ve built with members.”