Living with credit, New products

Startup says it can help prevent credit report errors

Kelly Dilworth

A startup company based in Durham, N.C., says it can help keep your credit reports error-free by blocking an error from occurring in the first place. How? By pressuring lenders and even debt collectors to accurately report your payments to the credit bureaus — or else.

“There’s a whole class of errors that are preventable,” says Walter Pinson, co-founder, along with Tiffany Smith, of the months-old startup known as Alekto.

Some errors, such as name mix-ups, can’t be helped until after they’ve been discovered, says Pinson. Others, however — such as mistaken payments or accounts that are listed incorrectly — often occur before the items have been recorded in your credit file. It’s these types of slip-ups that Pinson and Smith say they can prevent.

How they do it

The magic works like this, they say: Rather than pay a lender or debt collector directly, you send your payment to Alekto, and the company will record the date of your payment, then hold it in escrow until the company confirms that the payment has been properly reported to the credit bureaus. Once the company receives confirmation that the payment has been reported accurately, it will release your payment to the lender and the credit bureau will record the loan as paid on time.

Pinson and Smith are vague on the program’s specifics (the technology that it rests on is still patent-pending) and won’t give away exactly what they’ll do to make sure lenders and debt collectors play along and don’t penalize consumers for a withheld payment. “Part of our strategy is to cultivate strategic partnerships with various companies to basically validate ourselves,” says Pinson.

They also acknowledge their idea can sound a bit far-fetched. “The concept is very well received,” says Smith. “It’s just a matter of proving that we can deliver what we say we deliver.”

Pinson and Smith say they are actively building the relationships with banks and credit bureaus they’ll need to make it work — and are confident in the transaction management system they’ve developed. “We have a methodology for ensuring that the credit report gets properly updated,” says Pinson.

Pinson also says that consumers can rest assured that their funds will be safe. “We’ll be entering into a contractual agreement that funds are going to be secure in that account until they are released with the creditor.”

As for how much the service will cost, “that’s actually one of the things we’re experimenting with right now,” says Smith. “We’re trying to figure out what the price sensitivity of consumers is, what they’re willing to pay.”

The startup’s error prevention service is still in beta form and has yet to officially launch. When it does, Pinson and Smith say it will be the first of its kind to give consumers an avenue for preventing errors before they happen.

“For a lot of people, they feel like credit is something that happens to them,” says Smith. “Historically, creditors have the power. They have the power to put stuff in your credit reports and you’re at their mercy.”

“We want to empower consumers and rebalance the situation,” she says.

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  • I wish them well, but you can color me extremely skeptical about this business plan. What incentive do creditors have to play ball?
    Imaginary conversation:
    Alekto: “Before we release this client’s payment to you, we want to see that you’ve already reported it to credit bureaus as being paid.”
    Bank: “No.”
    Alekto: “Then you don’t get the money.”
    Bank: “OK.”
    Alekto: “But don’t you want your money?”
    Bank: “We don’t want the hassle. We’re going to treat late payments like we always do. The second we do, and start to damage your clients’ credit, they are going to race to cut us another check, and pay it to us directly, and then come after you. To us, you’re not a new paradigm, you’re a potential pain in our backsides that we can make go away — by doing absolutely nothing out of the ordinary.”

  • Hello Dan.
    You are right to be skeptical. And you are further correct that incentives are the name of the game.
    A fundamental aspect of our business model is the alignment of incentives between consumers, creditors, and credit bureaus. We have found a way to do this without any outside help. But the advent of the Consumer Financial Protection Bureau makes it a lot easier for us. I will direct your attention to the $200M+ penalty that the CFPB recently levied on Capital One Bank.
    Further, this article is a cursory introduction to what we are doing. Our methods and technology for solving this problem are currently patent pending. You’ll be hearing more about us soon. And when you do, I think that your perspective might change.