Firm Seeks To Tackle Lending Paradox
SALT LAKE CITY – Maxamum Inc. here believes it has a novel answer to a long-standing lending paradox.
The startup’s service is designed for consumers who can’t get a credit card because they have little or no credit history, but can’t build a credit history because they don’t have a credit card. To make its clients more viable prospects for lenders, Maxamum reports their payment activity on recurring bills, including rent, electric and cable, to MicroBilt Corp.’s alternative credit bureau, PRBC, according to American Banker, an affiliate of Credit Union Journal.
The service isn’t cheap. Monthly fees range from $25 to $75 depending on the level of membership. Ben Duncan, a Maxamum co-founder and the Salt Lake City company’s president, told American Banker the service is valuable because it streamlines a complicated process. “If you walked into a bank and you wanted a loan and they said you didn’t have enough credit background, and you walked into that bank with a shoebox full of receipts, they’d have to consider those receipts,” he said. “We eliminate the shoebox.”
Credit experts were skeptical that the service can do much to aid consumers without credit backgrounds. Their doubts underscore the fact that nontraditional data still is not widely used in lender underwriting models, and it may be some time before that changes, American Banker reported.
“I’ve been highly suspect of companies that describe their service as reporting data to alternative credit bureaus, simply because the ultimate value to the consumer is a bit speculative at best,” said Philip Philliou, a partner with the consulting firm Philliou Selwanes Partners LLC in New York. “The big question is do the banks care about their score for the purposes of using it in their decisioning for a consumer credit card?”
PRBC verifies the accuracy of the data it receives from Maxamum. The bureau’s parent, MicroBilt, is the exclusive licensee of the FICO Expansion score, which Fair Isaac Corp. created in 2004 to help businesses assess the risk of an estimated 50 million to 70 million consumers with little or no credit histories. Since then, about 10 million consumers have been scored with the FICO Expansion score.
Nearly 800 lenders currently use the score, including “buy here, pay here” auto dealers, local furniture stores, jewelers, landlords, community banks and credit unions.
But for the most part, conventional credit reports track only a consumer’s payment history on lines of credit, not recurring monthly bills for items such as rent, electricity, cable and cellphones. The major hurdles to getting such information have been a lack of robust, verified data and a slowness among lenders to change their ways.
The major credit bureaus balk at letting consumers self-report bill-payment activity, because it is difficult to verify. Having the utilities or third-party companies report directly to the bureaus eases some of that concern, but many states do not let utilities share customer information. Another issue is that many more companies don't have adequate technology to report the data to the bureaus. “We certainly think we’ll get it back and then some,” she said. “Otherwise we wouldn't be doing it.”