BOSTON – People frequently justify spending a little more money by saying "You get what you pay for." So when you look at laying out money and come to the conclusion "You can't tell if you're getting what you pay for," there is little doubt that you've come face to face with a Stupid Investment of the Week.
And if you carefully check out the credit-repair service offered by AmericanCreditBuilder.com, it's clear that you could come away so unsure of the potential results that it's most likely not worth the effort.
Unlike many credit-repair services which make inflated claims, the problem with the American Credit Builder program is that you'll be on the hook for services for months before you have a clue if they actually work.
Stupid Investment of the Week highlights the conditions and flaws that make an investment less than ideal for the average consumer, in the hope that showcasing the problems in one situation will make landmines easier to spot elsewhere. The column is not meant to be an automatic sell signal; for American Credit Builder — which qualifies as an "investment" because members are laying out money and expecting a return (an improved credit rating) — customers clearly should gauge their progress before bailing out.
American Credit Builder helps members build their credit rating by making sure nontraditional payments are part of the mix. Credit bureaus normally focus on charge cards and consumer loans, but American Credit Builder gets them to look at utility payments, rent and other regular expenses. Reporting these payments to more than 175 credit bureaus is supposed to help establish a responsible credit history.
The service costs $24.95 per month plus another $24.95 in set-up charges. For that $300 per year, you get a free prepaid MasterCard with $10 cash loaded onto it, a free bill-paying service using that card, free credit-building tips and an e-book on "How to Repair Your Own Credit."
There's also a newsletter, access to credit reports (which under federal law you now get for free from the major bureaus at least once a year) and a complete history of transactions (which, of course, you could maintain yourself).
By paying phone, utility and other bills either with the card or through the American Credit Builder bill-pay service, the consumer's payment history is consolidated and then reported to the proper authorities.
For someone with a "thin" credit file or a lousy credit rating, those transactions create a history of regular payments. In theory, this elevate the credit score, leading to better loans, which over time can recoup the 25 bucks a month paid for the service. The question is whether the service actually helps in practice.
Carl Saling, director of public relations for American Credit Builder, noted that there is no guarantee — or even a projection — for how much the service might improve the member's credit rating.
"If you have issues with your credit currently, you also need to clean those up at the same time," Saling says. "You are cleaning your credit by doing the different techniques, and then we show them the payments you are making to help build new credit, and you can see a dramatic impact in six to nine months."
"But some people pay the rent or phone bill on time, but still have problems with their other credit cards, which is self-defeating," he adds. "They are building credit one way, but still hurting their credit in another way."
Rather than being the credit-fixer that the Web site suggests, the American Credit Builder program is more like a booster to the other efforts an individual makes to pump up credit.
Even used that way, there are still concerns. For starters, the credit agencies don't have to accept the consolidated bill-payment reports they get from American Credit Builder; while Saling says he has not seen any cases where credit bureaus refused the information, it is unclear precisely how much help the information will be.
After all, many ordinary bills are not credit, but rather payment for the upcoming billing period. Moreover, while the reporting adds positive lines to the credit report, it may not translate to the credit score when it comes to getting a loan.
"You don't get to decide which bills count on your credit report," says Greg McBride, senior editor at Bankrate.com. "That's up to the credit bureaus and the scoring agencies."
McBride and others noted that a consumer interested in adding positive lines to their credit report could get a secured credit card — without paying the $25 a month — to build the record.
Credit agencies are trying to capture more diverse information; in some parts of the country, telephone providers now report regularly to credit bureaus, a trend most observers expect to grow.
Fair Isaac, the leading provider of credit scores, offers the FICO Expansion Score, a measure based on "nontraditional credit data" such as deposit account records and performance on purchase payment plans. The firm is not alone; organizations such as Pay Rent, Build Credit Inc. (payrentbuildcredit.com) are trying to make other payment streams a bigger factor in new and different credit-scoring measures.
That means American Credit Builder's approach is on the right track; the problem is that you have no way to gauge if it's moving customers in the right direction at a reasonable speed. Customers can't tell if their credit is improving as a result of the program or from simply practicing good credit habits.
American Credit Builder's 30-day money-back guarantee is no help, since it's not in place long enough for members to see any credit report change at all; it also covers only the monthly charge, although the MasterCard loaded with $10 will help ease the pain.
"This appears to be a service for lazy consumers, people who pay for something they could probably do almost as well on their own," says Paul Richard of the Institute for Consumer Financial Education. "If you have bad credit, this won't be a quick fix, and you probably can't afford it anyway."
Copyright (c) 2006 MarketWatch, Inc.