Quick Take: How the SeedFi acquisition is enabling Intuit to zero in on consumers’ financial well-being
- Given the current macroeconomic headwinds, debt cycles are getting created faster than they are being eliminated. Helping Americans realize their financial capabilities amid debt spirals is a challenge.
- To help consumers with low credit scores build credit while saving money, Intuit has made a move to acquire SeedFi – a personal loan and credit-building platform.
Traditionally, people of color, those from underprivileged households, younger consumers, and immigrants across the US have faced many challenges pertaining to building and maintaining good credit. Having no or low credit makes borrowing money more difficult and costly — giving rise to issues like debt, obstacles in securing housing and employment, and impeding the underserved population from building savings or wealth.
As many as 45 million American adults are considered “credit-invisible,” which means they either have no credit score or thin credit files without enough information to create a credit score, according to data from the Consumer Financial Protection Bureau (CFPB).
Intuit’s Credit Karma partnered with SeedFi in 2021 to offer Credit Builder technology to its members, enabling them to take steps toward improving their financial well-being. Through this partnership, members increased their score by an average of 21 points within 30 to 45 days and built up over $10 million in savings.
Credit Builder is a program that allows members to build credit while they save, without any charge. Credit Karma Money members who use the Credit Builder service have an initial savings goal of $500. They can then choose how much they wish to contribute toward their goal on a biweekly, semi-monthly, or monthly basis. Once this is established, Credit Builder holds the amount borrowed in a locked savings account while members make regular contributions, establishing a history of on-time payments.
When a member signs up for a Credit Builder plan, they receive a line of credit from a partner and commit to making regular payments to themselves into a locked savings account, which can be as little as $20 a month. That $20 amount is then processed as a payment towards the line of credit and reported to the bureaus, which capacitates members to increase their credit and save money at the same time.
By reporting these payments to the credit bureaus, members take the initiative to strengthen their financial health.
This acquisition enables Intuit to unite SeedFi's technology with Credit Karma's established relationships with credit bureaus and others in the credit ecosystem, to further catalyze Credit Karma’s speed and scale in helping its members achieve their financial goals.
Credit Karma has more than half of the US millennial population on the SeedFi platform. In addition to the underserved community, this enables SeedFi to serve a growing population of Gen Z members who are new to building credit.
“Credit Builder is especially appealing for this demographic because it doesn't push them into debt to build credit. Plus, it puts them on the path to responsible financial behavior with automated savings,” said Poulomi Damany, GM of Assets and Tax for Credit Karma.
How can Americans realize their financial capabilities?
Given the current macroeconomic headwinds, debt cycles are getting created faster than they are being eliminated. Helping Americans realize their financial capabilities amid debt spirals and managing debts during a period of rising interest rates and slowing economic growth can be challenging.
Credit Karma analyzed member data to measure the change in member behavior over time, using a subset of members with TransUnion scores reported to the platform. The data showed that consumers’ credit scores declined by 12 points since March 2022, thereby increasing the proportion of American consumers (26%) moving to a subprime score band. Furthermore, the average total credit card balance was up by 20%.
“When it comes to breaking the cycle of debt, it helps to start by knowing where you stand. That means taking a look at your full financial picture, including money coming in and money going out, along with any money owed. Then, make a plan for each dollar. From there, it’s important to educate yourself about the different products and tools that are available to help you manage and improve your finances,” said Damany.
For example, a credit card can be used as a tool to help build credit if used responsibly. However, if someone already has overdue payments, one way to go about debt consolidation would be using a personal loan or balance transfer card. This would help the user streamline her payments into one monthly payment at a lower interest rate, or, in the case of a balance transfer card, at no interest for the duration of the introductory period.
Presently, Credit Karma is seeing the progress consumers made during the pandemic in paying down debt, building up savings, and increasing credit scores start to erode with the current economic uncertainty. But this year, the firm plans to continue to pave the way for financial progress for its members, regardless of where they are on their financial journey, according to Damany.