A startup credit reporting firm is offering consumers a way to have their routine payments build up their credit scores while earning rewards.
Maxamum Inc, a Utah-based, will offer consumers rewards for the payments that they will allow the firm to report to Payment Reporting Builds Credit.
PRBC is an alternative credit bureau that formulates the FICO Expansion score, a credit score which reflects a broader range of consumer payment behavior than do the traditional credit scores.
Various credit unions around the country have supported using alternative credit scores as means of helping lower income members or communities.
"The Maxamum business model represents a paradigm shift in the rewards industry," said Ben Duncan, president and co-founder of Maxamum Inc. "Whereas traditional rewards programs are predicated upon consumer spending and increased debt, the Maxamum model rewards consumers for positive and necessary consumer behavior, such as paying your bills on time. The Maxamum model encourages constructive consumer action that leads to creditworthiness, extended financial resources and, ultimately, improved financial health."
After enrolling through the firm's website, consumers can join in a membership program that will allow Maxamum to report up to four bills, such as rent, utilities and phone bills, to PRBC. As an incentive for paying and reporting bills regularly, Maxamum offers its members an incentive-driven program where accumulated points can be used toward merchandise and other rewards, the firm said. Points can also be converted to cash value, which members can opt to use toward paying a bill.
On the surface this appears to be something credit unions might find as an appealing tool for their lower income members, especially since the rewards aspect would help make sure reports are made regularly. But if Maxamum's rewards program is unique, it is akin to other similar programs in that it charges consumers fees for the reporting.
According to the firm's website, consumers that wish to use the service to record payments on two accounts, one of them being their account with Maxamum, will pay $25 per month, three-account reporting will cost $49.95, and four accounts will cost $74.95. In addition, the firm charges a one-time set up registration fee of $10.
To ensure accuracy in reporting, the Maxamum membership also includes its "Credification" service, which verifies the accuracy and authenticity of all credit data and consumer information prior to being reported to PRBC, the firm said.
Terrell Smalls, CEO and a co-founder, defended the firm's fees by noting that such fees are routine among firms that collect data for alternative credit scores because the types of firms whose payments they report do not report them on their own.
"We take in money from consumers in the fee, but then we have to pay out money for each trade line they want us to report," Smalls said. "We don't pay a flat fee to PRBC, we pay per account reported and verified," he said.
Another reason for the costs is that the entire process is relatively paper intensive. For example, while a consumer might sign up for the reporting online, the actual process of giving his or her landlord, utility company or cable provider permission to report the payment records and data requires paper permissions, usually faxed in and processed by hand, Smalls added.
"Our margins on each account are really very slim," Smalls said. "Even slimmer when you consider the costs of the rewards program and cash back."
Linda Sherry, Director of National Priorities for Consumer Action, said such fees were common in the world of alternative credit reporting because many of these sorts of firms only routinely report bad credit information and because consumers with a thin credit file or no credit file have few other places to turn. "If you don't have any credit history in this society right now, you are really out of luck," she said.
Smalls said that Maxamum is sensitive to the fee issue, but the firm also felt it was a bargain when placed against the cost in additional or higher interest rates that await consumers with a high interest credit card or car loan. These can add thousands of dollars per year to things that consumers need, he noted. "A basic Maxamum membership will cost $300 per year and potentially save thousands. I think that is a better deal," he added.