Credit Karma: good habits, autonomous finance
Credit Karma is quickly reiterating its vision of providing “stand-alone financing,” in which it aims to help people better manage their spending habits to quickly reach their financial goals. And one of the first steps in that process is to make sure that people’s credit scores are where they need to be.
The company’s new bill payment feature, unveiled on Thursday, which aims to ensure timely payment, will play an important role in realizing that vision.
Credit Karma’s chief asset and tax manager Poulomi Damany told PYMNTS that the new features are designed, first and foremost, to help people move beyond the simple paycheck and get them to budget and budget and to save and, eventually, to create wealth.
“A lot of your day-to-day expenses are paying your bills, so we thought, ‘How do we tie these two ideas together? ”, Said Damany.
Damany called on banks to come up with very basic bill payment options which in most cases simply offer the choice of making an electronic payment or sitting down and writing a check. This means that there are no real benefits for consumers. Pay your bills and you’re up to date, nothing more. But forget to pay and suddenly you’re slapped with a penalty – and your credit rating suffers.
“One hundred million people in the United States, at any point in their lives, have missed a bill,” she said. “It can negatively affect your credit up to 100 points.”
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Credit Karma is trying to build something more comprehensive, where bill payments are tied to people’s credit scores so that timely payment can actually lead to improvement, Damany explained.
One hundred million people represent a huge untapped market for Credit Karma’s offering, and while Damany did not specify how many people the company is looking to target, she pointed out that the bill payment offering is available to anyone with a credit card account. Credit Karma is certainly aiming high, as it points out that it has over 110 million members in Canada, the United States and the United Kingdom.
Asked what kind of credit improvement people might expect to see using Credit Karma for bill payments, Damany said it really depends on the user’s current debt level and location. where her credit score stands today, with a possible net gain of 40 to 100 points if no payments are missed.
Avoid bad habits
The conversation turned to the growing phenomenon of Buy Now, Pay Later and how this could impact Credit Karma’s efforts to help clients build their credit scores. Damany said BNPL is an interesting trend that is really gaining popularity among young people, although it may conflict with the financial habits advocated by Credit Karma.
“What we find is that [Buy Now, Pay Later] don’t stop you from overspending, ”she said, a concern that Credit Karma will try to instill in borrowers by emphasizing that installment debt is always debt that must be repaid.
She pointed out that one of the things her company tries to do with its Instant Karma offering is to reward good financial behavior.
“Instant Karma can randomly reward you for your debit card purchases. Your debit card purchases mean you only spend the money you have today, not money in the future like credit cards or Afterpay, ”she said. “So with Buy Now, Pay Later, we want to be very careful that you don’t get into more debt. “
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Use Automation to Achieve Financial Goals
Debt avoidance is a key part of Credit Karma’s vision of “self-sufficient finance,” which Damany says involves understanding people’s ultimate financial goals and suggesting ways to achieve them. In this regard, Credit Karma sees itself as a kind of financial assistant or helper, so to speak, advising clients on how they can achieve their goals. Part of that will involve providing timely reminders to make sure they don’t stray from this course.
Autonomous finance, said Damany, is “this notion of, we have your credit data. We have the other side of your balance sheet, which is your income, and now we know what you want to save for.
Credit Karma can tie these notions together, Damany said, and enable automation underneath.
“So we can be on the lookout for your credit card payment requests now, so let’s automate those payments for you on a schedule,” she explained. “Or we can be like, that’s how much money you have left each month. Would you like to start saving for a rainy day fund?”
It would also work for much bigger purposes, Damany said. So if anyone has ever told Credit Karma that they want to buy a house in the next few years, they would know, based on their income and expenses, when to start saving for a down payment. So he can make a timely suggestion as to when that person should start putting money aside, and how much, etc., she explained.
“For us, this is the beginning of autonomous finance,” she said.
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Damany said the company believes the idea of autonomous finance will have greater appeal among younger consumers, especially Gen Z, who are just starting their financial journey. What is essential, she says, is teaching people to adopt good spending habits before they graduate, before they have their first car and before they rent their first apartment.
Millennials are another target, as they make up about half of Credit Karma’s membership. Damany believes Instant Karma can play a key role in starting Millennials and Gen Zs on their financial journeys.
“Financial decisions are very anxious decisions, so how can we help you take that first step and push you in the right direction without overwhelming you? ” she said. “This is where Instant Karma comes in. We’re going to show you what the right behavior is and reward you so you feel like you’re making the right move.