I contacted Credit Karma to ask if this was what they expected to pay out to obtain the credit reports for their new service, or if this was just a general amount they pay to secure the credit scores and reports. I was told this was just a general amount by their communication department. “With more than 20 million members, we will pay out tens of millions of dollars to obtain the scores and reports for our members.” When I asked for the exact number they pay out, I was told that was information they did not give out, but that doesn’t mean we can’t look into the information we do have to make some guesses.
Since this figure was announced with the launch of the new credit report service, I assume the company has been paying out the tens of millions for the credit scores alone, since they wouldn’t have paid anything out for the reports when the interview took place. I also assume they aren’t paying out over a hundred million dollars, or they would have said that instead of “tens of millions” when quantifying the amount these freebies cost them. If that’s the case, they are paying less than $5 a person for this material, which is a pretty darn good deal. Now, this is just one part of their overall cost. They have advertising costs and costs to run the company as well, so this isn’t the total amount they spend on each user.
Credit Karma is one of those companies where the saying, “If it’s free, then you’re the one that’s being sold” aptly applies. The company doesn’t give scores and reports for free just to be nice. They do it to make money, and they make their money by offering deals to the users such as credit cards and other financial services. When a user signs up for one of these, the company gets paid a referral fee.
The company feels confident they can make enough money off of you to give you both a credit score and report on their dime while spending tens of millions of dollars in the process. The numbers obviously work out or their business model would collapse. So while you are able to see your score and report without having to pay for it directly, don’t be fooled into thinking you aren’t paying for it at all — you’re just doing so in other ways.
(Photo courtesy of Damian Gadal)