4 ms·

Forget tax prep, Credit Karma was our only hope of a competing product to the 3 credit bureaus. A sort of augmented credit report, if you will.

toomuchtodo 6y ago
In my opinion, credit reporting agencies don't need more competition, they need more regulation. Free access by consumers at any time (instead of the stingy once per year per CRA via annualcreditreport.com), free locks at any time with a very short SLA on locking and unlocking requirements (forcing automation and generous user control via apps and websites), as well as requirements making disputes as straightforward and painless as possible along with steep penalties for maintaining incorrect information on a consumer that negatively impacts them. EDIT because I'll get HN throttled writing too many comments quickly: @smt88 Regulation can and should require providing regulators with credit scoring algorithms, and the regulation of those algorithms (starting with Fair Isaac's/FICO scoring models). This is no different than recent conversations about requiring ML models be transparent to regulators. This is what legislation is for.
- smt88 6y ago
  The regulations you mentioned don't fix their idiotic formulas for calculating your credit score. For example, shopping around for good terms on a loan could hurt your credit score. Or never having borrowed, despite having a great income, somehow meant you can't buy a house. As a lender, I'd want competition in formulas, not necessarily in the core data (the number of loans a person has now and their history of payments).
  - djmobley 6y ago
    Do you have any evidence of the former example? My understanding was that this would generate soft searches, which should not impact your score. On the latter example, would you lend vast sums of money to someone who has never demonstrated their ability to manage and repay a loan?
    - TheHypnotist 6y ago
      One example: They give you a window for shopping Mortgage rates so that you only have 1 inquiry impacting your score. Outside of that window, other inquiries will impact your score.
    - macNchz 6y ago
      Mortgages and car loan pre-approvals definitely involve a hard pull—but the effect is temporary and only a few points, so it is still very much worth shopping around for the best rate. AFAIK some credit cards will let you do a soft pull to see if you would be approved, but still need a hard inquiry before opening the account.
    - yardie 6y ago
      I have 3 hard pulls on my account. I was looking at buying a car so got pre-approved by my bank (1). The dealer pulled (3) more figuring they could get me a better rate, and a fat commission for them. My score dropped 30 points over the next few months as the hard pulls started to show up. > would you lend vast sums of money to someone who has never demonstrated their ability to manage and repay a loan? Banks seem very comfortable lending it to guys who talk the talk regardless of their ability to repay. Hell we have on such trickster in the whitehouse, now. These rules only apply to the rich and the upper-middle class (the ones who really caused the financial loan industry to collapse in 2008).
    - cactus2093 6y ago
      "Soft searches", i.e. what you see from credit karma or what even your bank might show now when you log into their website, are just estimates of your score. In fact there really is no "your score", the only way to know if you'll be able to be approved is to apply for the loan which requires a hard pull and the lender will interpret the report however they want and translate it to their own version of your score that you'll be evaluated on. It's very common that credit karma will show a decent score, and then when the person applies for a loan or mortgage the score the lender uses comes up much lower and they get denied, and there's little they can do about it except try again later and hope the number went up. > On the latter example, would you lend vast sums of money to someone who has never demonstrated their ability to manage and repay a loan? I think this is a misunderstanding of the role of debt in the world today. Access to debt is all but a necessity to have any hope of financial stability. Prices of large costs like housing and college tuition have increased in massive surplus of the average person's ability to pay for them, which in many ways is a huge problem in and of itself, but the only way the system even sort of still works is easy access to debt. In these circumstances it really doesn't make sense to just shrug it off and let some people fall through the cracks with no recourse because the antiquated and opaque system didn't approve them.
  - deleted 6y ago
    [deleted]
  - kube-system 6y ago
    Those aren't idiotic formulas, those features are intentional. A lack of credit history or an unusually high number of credit applications are risk factors that statistically correlate with credit risk, which is why it is in the score that the bank pays for. You're not the customer here -- the score is for the bank, not for you. > despite having a great income, somehow meant you can't buy a house. The correlation between income, credit score, and risk is weaker than you might think. High-income people can also outspend their ability to repay. [0] Banks can use income to rule out a mortgage application, but that number is not useful for measuring the converse, because spending varies widely. > For example, shopping around for good terms on a loan could hurt your credit score. Credit bureaus do account for this, because as you might guess, shopping around does not correlate with credit risk. Usually this is done by counting only one application per time window. (45 days in the case of FICO) But, even then, hard hits on your credit are typically weighted very low. The reason it matters at all outside of that window is because they want to identify people who are, for instance, applying for new credit every 6 months because they are in financial trouble and digging themselves a hole of debt. [0]: https://www.federalreserve.gov/econres/notes/feds-notes/are-income-and-credit-scores-highly-correlated-20180813.htm https://www.federalreserve.gov/econres/notes/feds-notes/are-...
- cactus2093 6y ago
  I'm often not a fan of regulation, but I wholeheartedly agree with you. It actually may be that deregulation could also work, as with many things we've found the worst of all worlds where there's just enough regulation to keep out any real competition and not enough to actually protect anyone other than a few lobbied interests. But deregulation would be a much riskier approach, whereas there is a pretty clear, minimally invasive path forward for regulation to solve a lot of these issues. In addition to the things you suggest, I also think more regulation around what kinds of recurring bills should and should not be considered debt, and stricter rules around things being sent to collections. Right now, if e.g. you have a $30 utility bill for a partial month of service on your previous residence, the provider can send it to collections without really making any reasonable effort contact you. There are also predatory recurring bills that can be incredibly difficult to cancel and that turn into debt if you forget about them. At a bare minimum, physical mail shouldn't be sufficient notification that an account is past due, creditors should have to make some kind of reasonable effort to contact you that is consistent with modern social mores. There are lots of rules that could be put in place to better protect consumers from accidentally having their credit ruined. I really don't believe that a young person being a little bit careless, or not understanding the intricacies of the credit system and what is at stake, has anything to do with whether they are capable of making payments on a major purchase like a home years later.
- deleted 6y ago
  [deleted]
downvoteme1 6y ago
How was credit karma sourcing this data on your behalf from the credit bureaus. Were they paying the bureaus for this data from their VC funding. Coz then you would be the product . They would show this data to you and also try and sell this data to other financial institutions like loan and credit card companies .
- scarface74 6y ago
  It might seem like I’m being pedantic, but companies like CK don’t usually sell your data to companies. It wouldn’t be good business. The companies have certain parameters for who they want to advertise to and CK shows you ads and gets a commission. Your data would only be shared if you initiated a transaction with the advertiser. Whether that makes the situation better is a judgment call. But, your data is never shared without your permission.

toomuchtodo 6y ago

In my opinion, credit reporting agencies don't need more competition, they need more regulation. Free access by consumers at any time (instead of the stingy once per year per CRA via annualcreditreport.com), free locks at any time with a very short SLA on locking and unlocking requirements (forcing automation and generous user control via apps and websites), as well as requirements making disputes as straightforward and painless as possible along with steep penalties for maintaining incorrect information on a consumer that negatively impacts them. EDIT because I'll get HN throttled writing too many comments quickly: @smt88 Regulation can and should require providing regulators with credit scoring algorithms, and the regulation of those algorithms (starting with Fair Isaac's/FICO scoring models). This is no different than recent conversations about requiring ML models be transparent to regulators. This is what legislation is for.

smt88 6y ago
The regulations you mentioned don't fix their idiotic formulas for calculating your credit score. For example, shopping around for good terms on a loan could hurt your credit score. Or never having borrowed, despite having a great income, somehow meant you can't buy a house. As a lender, I'd want competition in formulas, not necessarily in the core data (the number of loans a person has now and their history of payments).
- djmobley 6y ago
  Do you have any evidence of the former example? My understanding was that this would generate soft searches, which should not impact your score. On the latter example, would you lend vast sums of money to someone who has never demonstrated their ability to manage and repay a loan?
  - TheHypnotist 6y ago
    One example: They give you a window for shopping Mortgage rates so that you only have 1 inquiry impacting your score. Outside of that window, other inquiries will impact your score.
  - macNchz 6y ago
    Mortgages and car loan pre-approvals definitely involve a hard pull—but the effect is temporary and only a few points, so it is still very much worth shopping around for the best rate. AFAIK some credit cards will let you do a soft pull to see if you would be approved, but still need a hard inquiry before opening the account.
  - yardie 6y ago
    I have 3 hard pulls on my account. I was looking at buying a car so got pre-approved by my bank (1). The dealer pulled (3) more figuring they could get me a better rate, and a fat commission for them. My score dropped 30 points over the next few months as the hard pulls started to show up. > would you lend vast sums of money to someone who has never demonstrated their ability to manage and repay a loan? Banks seem very comfortable lending it to guys who talk the talk regardless of their ability to repay. Hell we have on such trickster in the whitehouse, now. These rules only apply to the rich and the upper-middle class (the ones who really caused the financial loan industry to collapse in 2008).
  - cactus2093 6y ago
    "Soft searches", i.e. what you see from credit karma or what even your bank might show now when you log into their website, are just estimates of your score. In fact there really is no "your score", the only way to know if you'll be able to be approved is to apply for the loan which requires a hard pull and the lender will interpret the report however they want and translate it to their own version of your score that you'll be evaluated on. It's very common that credit karma will show a decent score, and then when the person applies for a loan or mortgage the score the lender uses comes up much lower and they get denied, and there's little they can do about it except try again later and hope the number went up. > On the latter example, would you lend vast sums of money to someone who has never demonstrated their ability to manage and repay a loan? I think this is a misunderstanding of the role of debt in the world today. Access to debt is all but a necessity to have any hope of financial stability. Prices of large costs like housing and college tuition have increased in massive surplus of the average person's ability to pay for them, which in many ways is a huge problem in and of itself, but the only way the system even sort of still works is easy access to debt. In these circumstances it really doesn't make sense to just shrug it off and let some people fall through the cracks with no recourse because the antiquated and opaque system didn't approve them.
- deleted 6y ago
  [deleted]
- kube-system 6y ago
  Those aren't idiotic formulas, those features are intentional. A lack of credit history or an unusually high number of credit applications are risk factors that statistically correlate with credit risk, which is why it is in the score that the bank pays for. You're not the customer here -- the score is for the bank, not for you. > despite having a great income, somehow meant you can't buy a house. The correlation between income, credit score, and risk is weaker than you might think. High-income people can also outspend their ability to repay. [0] Banks can use income to rule out a mortgage application, but that number is not useful for measuring the converse, because spending varies widely. > For example, shopping around for good terms on a loan could hurt your credit score. Credit bureaus do account for this, because as you might guess, shopping around does not correlate with credit risk. Usually this is done by counting only one application per time window. (45 days in the case of FICO) But, even then, hard hits on your credit are typically weighted very low. The reason it matters at all outside of that window is because they want to identify people who are, for instance, applying for new credit every 6 months because they are in financial trouble and digging themselves a hole of debt. [0]: https://www.federalreserve.gov/econres/notes/feds-notes/are-income-and-credit-scores-highly-correlated-20180813.htm https://www.federalreserve.gov/econres/notes/feds-notes/are-...
cactus2093 6y ago
I'm often not a fan of regulation, but I wholeheartedly agree with you. It actually may be that deregulation could also work, as with many things we've found the worst of all worlds where there's just enough regulation to keep out any real competition and not enough to actually protect anyone other than a few lobbied interests. But deregulation would be a much riskier approach, whereas there is a pretty clear, minimally invasive path forward for regulation to solve a lot of these issues. In addition to the things you suggest, I also think more regulation around what kinds of recurring bills should and should not be considered debt, and stricter rules around things being sent to collections. Right now, if e.g. you have a $30 utility bill for a partial month of service on your previous residence, the provider can send it to collections without really making any reasonable effort contact you. There are also predatory recurring bills that can be incredibly difficult to cancel and that turn into debt if you forget about them. At a bare minimum, physical mail shouldn't be sufficient notification that an account is past due, creditors should have to make some kind of reasonable effort to contact you that is consistent with modern social mores. There are lots of rules that could be put in place to better protect consumers from accidentally having their credit ruined. I really don't believe that a young person being a little bit careless, or not understanding the intricacies of the credit system and what is at stake, has anything to do with whether they are capable of making payments on a major purchase like a home years later.
deleted 6y ago
[deleted]

downvoteme1 6y ago

How was credit karma sourcing this data on your behalf from the credit bureaus. Were they paying the bureaus for this data from their VC funding. Coz then you would be the product . They would show this data to you and also try and sell this data to other financial institutions like loan and credit card companies .

scarface74 6y ago
It might seem like I’m being pedantic, but companies like CK don’t usually sell your data to companies. It wouldn’t be good business. The companies have certain parameters for who they want to advertise to and CK shows you ads and gets a commission. Your data would only be shared if you initiated a transaction with the advertiser. Whether that makes the situation better is a judgment call. But, your data is never shared without your permission.