The word “free” appears in super-sized letters a couple of times at the top of TransUnion’s website. Consumers, the company says, can get their credit score free with just a couple of clicks and also get a credit report for the low, low price of $1. To fully appreciate this bargain, it’s important that you ignore the much smaller text near the bottom of the page. It tells consumers they will be enrolled in a credit subscription service that costs $17.95 per month unless they actively cancel the “trial” within a week. TransUnion is not alone here. The big credit bureaus, including Equifax (EFX) and Experian (EXPN), have been using the lure of a “free” credit report to coax consumers into these subscription services for a long time.
On Wednesday, startup Credit Karma began offering a full credit report that is truly free. It is letting consumers pull a free report once a week, if they so choose. After you sign up, there’s no pricey subscription service to cancel or onslaught of nagging e-mails to delete. “Getting your credit report has been a bit of an antagonistic process,” says Ken Lin, the chief executive officer and founder of Credit Karma. “Our goal is to make things easier so that it’s three clicks and you’re done.”
Founded in 2007, Credit Karma made a name for itself by offering consumers a free look at their credit score and then layering easy-to-digest information around that data point. It would tell consumers where they stack up against other people, plus ways they might improve their credit score. The company analyzed the data of all its users and occasionally presented them with offers for credit cards or auto insurance plans. The hope was that Credit Karma’s smarts would save consumers and businesses time and money by finding them good matches. The plan has worked well enough for Credit Karma to pull in more than 25 million users, turn a profit, and bring in “hundreds of millions in revenue” this year, according to Lin.
Moving from providing a free score to a full report is the latest ploy to reach even more consumers. Credit Karma is, in fact, paying TransUnion for the reports and then funneling them to consumers for free. The more people Credit Karma can sign up, the more offers it can show and the more money it can make taking a tiny cut of whatever deals it closes. “We make a lot less per user than the credit bureaus,” says Lin. “But you can build great services by being more innovative and get to a big company approach without having those large margins.”
Thanks to federal regulations, consumers in the U.S. can receive one free credit report per year from the three major bureaus through AnnualCreditReport.com. What Credit Karma is proposing is more of a continuous service in which consumers get their reports a few times per year while learning techniques to improve their scores. The better their scores, the better offers they receive from lenders and insurance companies. “Our goal is to get you to the site when it matters,” says Lin.