A credit score without the credit report is like a test with only a grade.
That's why Credit Karma added a new service Wednesday that lets its more than 25 million members get weekly free, full credit reports in addition to their scores.
Historically, only lenders have had unlimited access to consumers' complete credit files, while consumers are generally restricted to obtaining just one free credit report a year from major credit bureaus. Credit Karma is making that data even more accessible so that consumers can better understand how lenders evaluate their creditworthiness.
For years, consumer-facing sites like Credit Karma, Credit Sesame and Quizzle have published free credit scores, helping to push card issuers like Free Bankcard and Discover to also distribute credit scores to their customers. The Consumer Financial Protection Bureau has urged more issuers to follow suit.
Free credit reports, not just scores, mark the next phase of what financial advice upstarts like Credit Karma are providing. The more readily available information could help consumers become better borrowers before they need credit. Lenders, which advertise on Credit Karma, could, in turn, obtain better leads from Credit Karma's new data service.
San Francisco-based Credit Karma, formed in 2007 to educate consumers about their credit scores and loan options, has steadily been expanding its suite of data services past free credit scores over the years. The company makes credit monitoring, loan calculators, credit report cards, educational videos and other tools available to consumers through its service. It makes money by generating leads for lenders and said it has worked with more than 100 partners, including major credit card issuers and loan and insurance providers.
The company's newest credit report service lets consumers see which issuers are checking their credit and calls attention to areas they should care about - such as high use of a credit card - in addition to displaying other information drawn from the credit report, such as payment history. (It gets the credit report information from TransUnion.) The expansion is meant to provide additional context around a number that may fail to tell the whole creditworthiness story.
"A credit score without a report is like trying to hit a bull's-eye on a moving target," said Ken Lin, chief executive and founder of Credit Karma which recently raised $85 million in equity funds, including backing from Google Capital.
Lin said the weekly credit report updates will benefit several categories of people, such as those who are shopping for loans, looking to improve their scores or wanting to monitor errors. The Federal Trade Commission found in 2013 that 5% of consumers spotted errors on their credit reports that could lead them to pay more for products.
To be sure, consumers have long been able to obtain free annual copies of their credit reports from the credit bureaus at www.AnnualCreditReport.com, even though research shows many don't. Still, Lin said his company is working to make the often jargon-ridden documents more accessible to the common person, for instance, by drawing customers' attention to credit areas to which they need to pay attention.
Quizzle, a competitive service, has also been making available two free credit reports per year as it works toward a similar educational ambition.
"Without the report, the score is just a number," said Todd Albery, chief executive of Quizzle. "Just like a score on a test, without the answers, you will not know why the score is the way it is."
Albery said 40% of Quizzle's users have chosen to receive at least two credit reports. The documents are meant to better educate consumers about their creditworthiness. Lenders, after all, have long used their own scoring models that pull from credit report data to determine underwriting decisions. "Because there is no standard credit scoring model, it is more important for [people] to check the information on a credit report," said Albery.
John Ulzheimer, a credit expert at Credit Sesame, said that while consumers have more options now for viewing credit reports, it remains to be seen if the majority will do so. Many consumers lack the awareness to view credit reports because they've had little to no schooling in financial matters.
"At best, it's a passing chapter in an economics class," said Ulzheimer. "Most people learn through trial and error."
As Credit Karma tries to educate consumers on their finances, it also continues its work to change the prescreen paradigm for credit applications.
"The idea is when you are looking at your credit score, we are also able to tell you which banks you are approved for, we are able to tell you the pricing and we are able to make the application process two or three clicks instead of 20 or 30 minutes," said Lin. "That's the ultimate goal."