- Credit Karma has launched Credit Builder, a no-fee line of credit to help users with low or no credit.
- Users can set up recurring weekly or monthly payments, which are reported to credit bureaus.
- Customers with credit scores of 620 or lower can improve their on-time payment history.
Credit Karma aims to help consumers traditionally excluded from the financial system with a no-cost line of credit for people looking to establish or repair their credit history.
The company, which initially built its brand as a place for free credit scores before expanding into other personal finance tools, announced the launch of Credit Builder on Thursday.
Through a partnership with SeedFi, a financial health platform backed by Andreessen Horowitz, Credit Builder will offer consumers with credit scores of 620 or lower a small, interest-free loan with an initial savings goal of $500.
Users choose the amount to contribute to the savings goal with regular payments, which are reported to credit bureaus to help improve a user’s on-time payment history, one of the main factors in determining an individual’s credit score. The money is held in a locked savings account, which users can access once they reach their savings goal.
If a user is unable to make a payment, Credit Karma and SeedFi will work together to minimize the negative impact on the person’s credit score, a Credit Karma spokesperson said. Users can cancel their plan and get all their money back without any overriding deals on their credit report, the spokesperson added.
However, the feature is not completely risk-free. If a user continues to miss payments without contacting SeedFi, the company will report the missed payments to the credit bureaus, the Credit Karma spokesperson said.
Poulomi Damany, managing director of Credit Karma Money & Tax, told Insider that the Credit Builder product is just one part of the company’s strategy to reach the more than seven million Americans without a checking account or bank account. savings and those with poor or no credit history.
“This will be a big theme for Credit Karma Money: How does your everyday money and spending habits also help you improve your credit?” she said. “How do we give, in particular, to people who are new to credit, who are just starting out – immigrants, Gen Z? How do we get them to the point of building that credit history so that they get the products that they need and they want?”
Credit Karma wants to reduce financial anxiety
Credit Builder is the latest installment of Credit Karma Money, which also offers free checking and savings accounts through a partnership with MVB Bank.
Following Intuit’s acquisition of Credit Karma in December 2020, TurboTax users have the ability to have their tax refund sent directly to a Credit Karma Money checking account, a move that Damany says has helped expand the Credit Karma user base.
Damany’s team will first track adoption of Credit Builder among Credit Karma Money’s core user base, before eventually tracking overall improvements in users’ credit scores since signing up for the product.
Credit Karma and SeedFi’s approach aims to make improving financial habits as easy as possible, Damany said, an important consideration for users with limited savings or time. More traditional solutions for consumers with limited credit, such as secured credit cards or prepaid cards, require users to have funds up front, a factor that Damany says further limits who can benefit from the product.
“This friction and this anxiety of ‘Will I even have enough money to get a secure card and set up this $500’ – we want to take it all away, don’t we?” she said. “We said, ‘Start with what you want. Start with as little as $20 a month, and you’ll get that accumulation.'”
Reducing financial anxiety was a key consideration for Damany and her team when developing Credit Builder and other Credit Karma Money products, as well as reframing what she calls the “negative branding” structure of the financial system. .
“You could do 100 things right, but the minute you make a mistake – you miss a payment, you don’t pay your whole bill on time – you get knocked out, so the credit score is a negative,” a- she declared. “So that’s what we mean by changing your relationship with money – we want to reward you for all the good things you do.”