Credit Karma Promises to End the Agony of Cleaning Up Your Credit Report
For Jason, the trouble started with a mistake that wasn’t his. After receiving surgery more than two years ago, the higher education professional in his mid-’30s said his insurance company assured him his medical bills would be covered. Shortly thereafter, he moved to Seattle, and put thoughts of his surgery to rest.
But when he went to open a credit card earlier this year, he was baffled to find he was rejected. Jason was no stranger to the anxiety that can come with personal finances. As a kid, his family had received harassing calls from collections agencies at his home. When he grew up, he was wary of dealing with such agencies and careful with accumulating debt.
Jason had already signed up for Credit Karma, but after being rejected, he began to scrutinize his credit record using the service. He soon found that two anesthesiology bills had gone unpaid despite assurances from his insurance company. The bills weren’t huge, but they limited his options and drove his credit score down.
“It was stressful. It was a reminder of the medical procedure, which itself was fraught and stressful,” says Jason, who asked his last name not be used to protect his privacy when discussing his financial and medical history. “It was having to defend myself, and do all this work to clear an account that should never have been created in the first place.”
Jason is far from alone. The FTC says that one in five Americans has an error on his credit report that could limit his ability to open credit cards or get approved for loans. Credit Karma, the free credit tracking startup, wants to help more Americans like Jason, who have errors that are hurting them even though it may not be their fault.
To do that, the company is rolling out a Direct Dispute feature today for free to its 45 million users. The startup, now valued at $3.5 billion, has promised to democratize access to personal financial information by bringing credit scores and the credit monitoring capability to anyone who signs up for its free service. Those features, the company says, already help Americans who otherwise might not see their reports or monitor their progress. Now the company wants to go a step further to actually help those who believe they have a mistake on their record be it from identity theft to lost accounts.
‘Only a Few Clicks’
To dispute an error on a report through the new system, a Credit Karma user fills out a “Direct Dispute” form, which sends the user’s information and complaint directly to TransUnion, one of the three major credit bureaus. TransUnion then investigates the claim, bringing it to the relevant financial institutions or agencies as needed.
While users can already dispute claims directly with credit bureaus, the process of fixing an error can seem opaque and feel draining. In true Silicon Valley fashion, Credit Karma prides itself on being transparent and easy to use with a seamless UI. “It only takes a few clicks,” says Anthony Lingen, product manager at Credit Karma. The company offers progress reports to update users on their disputes, but it doesn’t offer much more insight into the credit bureaus’ decision-making process than if you disputed an error yourself.
“It’s very convenient, it’s almost like one-stop shopping,” says longtime credit expert John Ulzheimer, who formerly worked at FICO and Equifax. “Clicking a button is easy, but that doesn’t mean it’s going to result in expunging mistakes on a credit report. That’s really a product of whether it is a mistake and whether or not the bank confirms it’s a mistake and tells the credit bureaus to change it.” Ulzheimer adds that this feature will, however, provide an easier path for customers to start the process of a dispute.
Credit Karma says that in the early trials it has facilitated more than 600,000 disputes, of which 87 percent led to a change with a user’s report within around five days. When faced with his unpaid medical bills, Jason, for example, decided to try out an early version of Credit Karma’s Direct Dispute system. He filed a complaint via the platform directly to TransUnion, explaining that the bills had wrongly been issued to him and that he hadn’t even received them since he’d moved. Two weeks later, he says, his record was clean.
‘We Get Paid’
For Credit Karma, there’s a very real reason to help customers get a blemish-free report. The financial upstart, after all, is dependent on members with good credit in order to make money. The company advertises financial products such as credit cards and loans to users based on their credit history.
“We basically look at your credit and then try to find products that you’re eligible for,” Nikhyl Singhal, the chief product officer of Credit Karma, says. “Every time a consumer uses Credit Karma to actually get a new product, we get paid.” Singhal wouldn’t go into detail about how much exactly Credit Karma is paid, but he added, “Suffice it to say, any time a customer is successfully brought to a lender, there is a dollar figure we get.”
The company’s model isn’t too far off from how good old advertising works. “One difference I would say is we only get paid if we successfully move people to new products,” he adds. Which means the company has every incentive to give its users tools to improve their credit scores—the ones who succeed may find themselves getting credit cards or loans through Credit Karma that otherwise they wouldn’t be able to. And Credit Karma makes a buck, too.