Millions across the U.S. are struggling to meet financial needs following unemployment brought on by the COVID-19 pandemic. But a Richardson-based tech startup sees a larger—and less sought-after—problem looming, and has come up with a solution to fill a growing gap.
For those with less-than-perfect credit score, options are starting to dry up. And, things are about to get a lot harder, according to Frank Santoni, co-founder of ImpactX Partners. Santoni and his fellow co-founder, Nathan Pinto, are working on fresh solutions to take on the looming credit crisis, which they say “customers are about to face on top of everything they are already dealing with.”
What Santoni and Pinto are doing is essentially a pivot. They hadn’t intended to go in this direction at the start of 2020.
ImpactX Partners is a two-year-old startup behind a digital bank that helps users avoid predatory loans. Last September, the duo completed the successful launch of their first product, TrustFund, which gained traction through February from customers looking for a clean slate approach to credit.
But when the global pandemic hit, Santoni and Pinto knew they had to do something—and fast—to help improve credit scores dogged by the ongoing economic upheaval.
That meant pausing any further work on TrustFund and setting an ambitious goal to research, design, and launch their first solution in 90 days.
“We were impacted by the COVID shut downs like everyone else. We had limited resources and our prospects of raising more were severely diminished during the early days of the quarantine,” Pinto says. “We decided to put our full energy and remaining resources into developing this solution anyway.”
What they developed is called CreditClimber. The credit-building loan service aims to make it easy and affordable to prop up lagging credit scores without going into further debt. It focuses on establishing a history of positive payments through a unique “rebatable membership” model that facilitates the building up of payment history.
Customers are able to borrow a small amount to cover the service’s annual fee, then get a rebate after each monthly loan payment. The monthly loan payments are reported to the major credit bureaus, and Credit Climber automatically rebates the payment minus interest fees back to the customer. For the customer, the net monthly cost is a flat $5.
“Our goal from the beginning was to create a mission-driven company that reduces financial stress for our budget-strapped customers and helps them achieve their goals,” Pinto says. “When we realized where things were headed with tightening credit markets, we knew we had to add a solution to directly help people’s credit profile.”
The team describes it like this:
A CreditClimber customer takes out a small $360 loan to cover the cost of an annual membership fee. The loan is not paid out to the customer right away, though.
Instead, the loan proceeds are held by CreditClimber. Each month, after the customer makes a loan payment of $35 to the lender, CreditClimber instantly rebates $30 back to the customer’s account. That makes the total monthly cost only $5.
After 12 months, the customer will have added 12 positive payments to their credit report and have received $360 back to their account.
“Credit scores are a chicken/egg problem,” Pinto says. “To improve it, you need to borrow money and pay it back. But you can’t get access to credit—at least fair credit, if you don’t already have a healthy credit score. Credit Climber makes it simple to add positive, on-time payments to your credit report immediately.”
The duo decided to focus on payment history for the project given that it makes up 35 percent of a person’s credit score, per MyFico. Santoni sees access to fair and affordable credit becoming an increasingly difficult issue for those with a credit score below 700.
As the economy continues to decline amidst the COVID-19 pandemic, the reliability of credit scores to assess creditworthiness are undermined, he says.
“Scores that were considered ‘good’ 6 months ago will likely get treated as ‘fair’ or worse. Lenders naturally avoid risk. So when in doubt, they will gravitate toward higher credit scores,” Santoni says. “That means it will become tougher for anyone with no credit or poor credit to access fair and affordable loans next time they need to borrow for a car or a mortgage—or worse, leaves them with only predatory, high-interest options.”
According to Santoni, credit health will continue to make people vulnerable to debt traps, especially throughout the pandemic.
He and Pinto are familiar with the sector—they founded ImpactX Partners in 2018 to help stop predatory “payday” loans. Pinto is a catholic seminarian turned serial entrepreneur and Santoni is a local social innovation veteran.
ImpactX has launched a temporary website with more information on Credit Climber, which they say has already gained interest from prospective customers. The first 500 to join the waitlist will get early access slated for late August.
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