Will Capital One Make Credit Karma Obsolete?

First it was Discover. Now it’s Capital One that is throwing a wrench into the business model Credit Karma has created for its livelihood. There continues to be huge changes in the arena of free credit scores, and Capital One has taken a step closer to making Credit Karma (and other free credit score companies like Credit Sesame and Quizzle) obsolete.

What is the big change over Discover? A dedicated area where customers can learn how to improve their credit score, and learn how financial decisions they make can affect it. In other words, they aren’t simply giving their customer a credit score and letting them figure out what that means on their own. They are providing tools so the customer can monitor, improve and educate themselves about their credit score.

More credit cards are offering credit scores these days (these include Barclays, Capital One, Discover, First Bankcard, and Walmart). Many are doing so with FICO scores instead of FAKO scores, although Capital One is also offering a FAKO score. This trend has the potential to seriously shake things up in the world of free credit scores. As more credit cards are giving credit scores at no cost to their customers with their bills, it’s becoming less necessary for people to search for a place where they can obtain their score. In other words, instead of people having to go out looking for it, their score is starting to come to them.

This move by the credit card companies has the potential to become a major disruption to the business model of free credit card sites. Why would consumers seek out a place to get their credit score for free if they’re already getting it at no cost, delivered directly to them from their credit card company? One argument Credit Karma could make against cards like Discover was that it provided a score, but it didn’t provide the credit monitoring and educational material on what the score meant to the consumer. Capital One, with their Credit Tracker, has taken a big step to move even closer to providing exactly what Credit Karma provides.

Instead of just a score on a credit card statement, Capital One has created a destination area on its website they call Credit Tracker. The goal of this area is to allow their customers to view their score, track it, and then strengthen their credit standing. This area gives customers access to their credit score, but then takes it a step further. In addition to the score, customers have access to a credit report summary and credit history which includes such basics as monthly payment amounts, accounts opened and number of inquiries. It also provides credit monitoring by issuing credit bureau alerts which can help customers spot potential fraud more quickly.

To better educate their customers, they provide a credit report card which gives a letter grade to a number of key factors which help determine each individual’s credit score. This, combined with a credit simulator which shows how different decisions the customer is considering taking will impact their score, Capital One has built an educational portal with tools for those interested in improving their credit score. They’ve taken it several steps beyond simply providing a score on a monthly basis to their customers.

The question to Credit Karma is how much of a threat to their business model are credit card companies like Capital One? The mere fact that more and more people are getting a credit score at no cost without even to have to seek it out is already a disruption to sites which offer free credit scores. While Capital One isn’t currently going after their income source (Credit Karma makes its money by taking the information they have to make offers to its users, then earning money when customers sign up for those offers), it’s not hard to see with their Credit Tracker dedicated area, they are only a step or two away from being able to do this if they want. If they do, it could have a devastating effect on the current business model of all free credit score providers, and even potentially make them obsolete.

How this will all shake out is still anyone’s guess, but it’s becoming more clear that there are some major changes is store for all parties offering free credit scores, and those who don’t adapt and differentiate themselves may find themselves irrelevant in this sector in the coming years.

(Photo courtesy of Eric Hauser)