 |
| 30 Yr Fix |
6.05% |
-0.01% |
| 15 Yr Fix |
5.60% |
0.01% |
| 1 Yr ARM |
5.29% |
0.00% |
| 5/1 ARM |
5.67% |
-0.06% |
| 30 Yr Tres |
4.56% |
-0.06% |
| Fed Prime |
5.00% |
-0.25% |
|
|
|
|
 |
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Credit Piggybacking - What Will They Think Of Next?
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We recently ran across this add on Craigslist:
"BORROW SOMEONE'S CREDIT SCORE WHILE WE FIX YOURS
You heard me... I'll get your score up to buy your house or car now, and
we'll fix your credit for the future. This is the best value in town!!!!"
Borrow someone's credit score? Yup, that's the deal and apparently
it is legal.
We found two of those web sites that claim to help borrowers improve FICO
scores recommending this method as part of an arsenal of credit
repair "tricks" (our word, not theirs.) One of them posted an article from
the Credit Repair Institute dated July 17, 2004 which advised readers:
"Borrow credit: By becoming an"authorized user" of someone's
credit card, you can in effect borrow someone's credit history. Find a friend
or family member that is willing to contact their credit card company and make
you an authorized user. Of course, make sure to pick a person with a good credit
history on that particular card. If the person who is allowing you to be an authorized
user is less than enthusiastic about the arrangement, you can give him the credit
card when you receive it. In other words, for this system to improve your credit,
you really do not have to do anything except piggy-back on the other person's
past and continued good payment history. The most obvious danger here is if the
person starts to neglect paying his account."
This technique of building credit, unofficially called "piggy-backing"
has been around for years and is often used by parents to help their children
beef up their credit scores. But what was a home-grown and usually family centered
activity has recently been institutionalized with web sites popping up offering
to act as intermediaries in brokering borrowed credit arrangements. In its current
incarnation it is generally making lenders and credit reporting agencies crazy
but is rapidly and significantly increasing credit scores of those that participate
and creating an income stream for credit worthy persons who allow their credit
to be piggy-backed.
The motivation behind piggy-backing is that increasing a credit
score can mean real money in the pocket of a borrower with less than optimal
credit. For example, Fair Isaac Corporation, the company that developed the
gold standard FICO scores estimates the following interest rates that are available
by score to a homebuyer seeking a $300,000 mortgage:
FICO Score Interest Rate Monthly Payment
| FICO Score |
Interest Rate |
Monthly Payment |
| 760-850 |
6.274% |
$1,852 |
| 700-759 |
6.496% |
$1,895 |
| 660-699 |
6.78% |
$1,952 |
| 620-659 |
7.59% |
$2,116 |
| 580-619 |
8.905% |
$2,393 |
| 500-579 |
9.899% |
$2,610 |
One major facilitator of piggy-backing is Instant Credit Builders, LLC (ICB).
It advertises on its web site that it has "developed a system to counter
the harmful societal impacts of an emerging market called 'subprime lending.'
Mob-like blood suckers under the umbrella of legitimate lending institutions
are targeting those who have poor credit scores but fall short of being beyond
credit risk acceptance."
Such companies do take some of the risk out of piggy-backing. They set up the
renter relationship and handle the financial transaction, receive and destroy
the cards issued to the renter and make sure that once the desired effect is
achieved the renter's name is removed from the account.
You have to give ICB credit for being right up front with its advertising.
No need to register and jump through a lot of hoops to find out exactly what
they are about - it is all laid out on its website. Want to rent credit? That
will cost $900 for the first "trade line" or authorized user slot, $1,700 for
two, up to $3,500 for five aged lines - i.e. those with a lengthy history of
good performance. One borrowed account can supposedly increase a score
between 40 and 45 points, two between 60 and 90 points, and five between 150
and 205 points.
According to J.W. Elphinstone, writing for the Associated Press, the credit
worthy who are willing to lend their credit cards make $100 to $150 per slot
depending on the age and credit limit of each card and can parlay his credit
cards into regular income. Once the credit card company files a new report to
credit bureaus and thus impacts the renters' scores, that renter is removed
from the borrowed account releasing that slot to be recycled to other renters.
The new information remains on the authorized user's credit report forever.
ICB maintains that some of its credit lenders make up to $5,000 per month if
they have high enough scores and multiple open credit lines.
Fair Isaac has long advised persons not to expect instant improvement in its
scores from such dutiful activities as paying on time, and closing or paying
down accounts, but apparently the impact of piggy-backing on scores is nearly
instantaneous. The AP's Elphinstone profiled a borrower who paid $1,800
in December for three credit card spots and in one month his score jumped from
550 to 715.
But lenders are concerned that while they are tightening credit
standards in response to problems with subprime lending those improvements are
being undone by piggy-backing. The practice is currently legal but perhaps not
ethical and the Federal Trade Commission and several states are looking into
it.
The phenomenon may not last long. FICO announced on June 12
that piggy-backing will soon come to an end on its watch. In September, when
the company issues an updated version of its credit score system, the authorized
user category will no longer have an impact on credit scores. It appears that
this change will be retroactive, thus rolling back the scores of "authorized
users." This will, of course, also affect the scores of the kid who might benefit
from a brief period as an authorized user of his father's card but FICO feels
that no more than 25 percent of credit scores will be impacted by the change.
And maybe putting Junior on dad's card is no more a legitimate use of the credit
scoring system than if dad were renting out that slot for $150.
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Comments (25)
| yes, I believe that because of life's circumstances, losing job etc is some of the major causes of bad credit. But for the majority of people, I think it is their lack of responsibillity. I met more students who had bad credit at age 22 due to their own lack of judgement. they wanted nice things and bought them then couldn't pay for them. That's not my fault. There are some situations (becoming disabled) that have caused people to have bad credit but marjority is lack of being responsible. |
|
| Above Posted By:
anonymous
| Mon, 24 Sep 2007 05:33:09 EST |
| The only reason the mortgage or "Banking industry " is upset is because they are not making as much money as they would like. Lets face it if everyone had good credit Banks, and America would go out of business. Let people use the loopholes to get ahead. If you use it to defraud then you should be prosecuted. People have been lying to banks for 30 years to get loans let them get over it. |
|
| Above Posted By:
ORLANDO
| Fri, 17 Aug 2007 19:39:54 EST |
| Stop blaming others and man up! |
|
| Above Posted By:
Troy
| Tue, 7 Aug 2007 09:52:10 EST |
| Piggybacking is a wonderful concept, very creative. |
|
| Above Posted By:
alan greenspan
| Wed, 1 Aug 2007 16:12:48 EST |
| It is not fair that you have to suffer 7 years for a mistake you made when you were 18. They're trying to do away with piggy backing because they arent't making all of the money they can off of people who do not have perfect credit! The mistakes you make should be removed from your credit earlier than 7 years. To me thats UNETHICAL! If someone allows their credit to be piggy backed, then they should have no say. If you make another mistake it'll be on your credit again. So who's defrauding who? |
|
| Above Posted By:
D.Burgess
| Mon, 23 Jul 2007 08:16:00 EST |
| I became disabled and had now income for two years. This TOTALLY ruined my credit! Through no fault of mine(Besides the disability), I have a bad credit score. Now that I'm on Social Security Disability, I can finally pay my REGULAR bills, but when my wife and I tried to buy a home, we had a VERY hard time due to our scores. Mistakes? Not really. What about people like me who have bad scores due to Social Security? Is it still wrong to "piggy-back" to put my score back where it was? NO!! |
|
| Above Posted By:
Michael
| Fri, 13 Jul 2007 13:55:16 EST |
| Keep the scoring model "as is" regarding authorized users. They're going after a minute segment that is tweaking the system. We still live in a capitalistic society, praise Jesus, that encourages competition. When competing, we expose advantages over our competition by manipulating systems. Everyone does it! Some play by the rules, some don't. The suggested change is a tactic straight out of the mortgage bankers play book. It's easier to legislate competition out than compete head to head. |
|
| Above Posted By:
G$
| Tue, 10 Jul 2007 12:18:35 EST |
| So, since all of our lines are shared between my wife and I, she'll take a credit hit?
This is a load of nonsense. |
|
| Above Posted By:
peterm
| Thu, 5 Jul 2007 16:24:23 EST |
|
Folks, the more you tell the naysayers, the harder it's going to be for you to find ways to live..Think about it. |
|
| Above Posted By:
Anonymous
| Tue, 26 Jun 2007 15:43:34 EST |
| How can I trust FICO when they are selling your information to the highest bidder? Anyone heard of trigger leads? Apply for a mortgage and see who starts calling you! Is this legal? What if you borrow money from a friend/family/whoever to pay down your credit cards to get a higher score before applying for a mortgage and then charge them back up to pay the borrowed money back? I have no pity for poor FICO. By the way, How much money did they make last year? |
|
| Above Posted By:
Bobby
| Thu, 21 Jun 2007 19:55:15 EST |
| If the FICO formula is changed such that first time home buyers, who currently constitute the bulk of the customer base for new and starter homes, who generally have lower than average credit scores, and who are already experiencing great difficulty with multiple new mortgage qualification processes, are discouraged even further due to a harsher/draconian FICO, then the housing market will quickly implode. Think that the current housing sales are poor? You ain't neen nothing yet. |
|
| Above Posted By:
The Garrett
| Thu, 21 Jun 2007 00:51:43 EST |
| These will primarily be young professionals, newlyweds, divorced/widowed/separated individuals who had no prior credit of their own, etc. Third...due to the sub-prime meltdown, fewer first time home buyers can qualify for a mortgage, now. New home sales are high due to discounts, incentives, and closing-table kickbacks. (Another questionable but legal financial "trick" that only works with unfinished or partly finished new properties.) (see next post) |
|
| Above Posted By:
The Garrett
| Thu, 21 Jun 2007 00:44:36 EST |
| As a mortgage professional, I've seen this first hand. What's interesting is that an authorized user acct can be used to increase a borr score, but can also be removed from a report if the Debt to Income Ratio is too high, without changing the score...The lender pulls credit, gets a score, see's that the DTI is too high and requests the tradeline be removed, reducing the DTI but not the score. So there's a fine line. I think there are other more pressing problems with the system. |
|
| Above Posted By:
Val
| Wed, 20 Jun 2007 09:42:40 EST |
| I'm wondering how this is going to effect score of spouses who are authorized users on cards . They are responsible for the payments as much as the "official" borrower. Are there going to be seperate policies for them? |
|
| Above Posted By:
pinkribbonloans
| Wed, 20 Jun 2007 09:36:45 EST |
| I disagree with you John. It is not fraud. My parents allowed me to have a 2 credit cards when I was in college. While I was an authorized user, it helped my credit overall.
FICO is just desperate! We will soon see yet another modification to this new rule. Of course there will be a loophole to this new weird rule from FICO. We know this, don't we? ,- ) |
|
| Above Posted By:
Peter
| Tue, 19 Jun 2007 21:24:19 EST |
| The credit reporting system is controlled by the banking lobbyists and there is no second chance opportunities for those of us who want to turn around. Life has challenges and setbacks and those who are trying to live right deserve a second chance. Why do we have to have negative information on a report for 7 years or so? It's part of an archaic system that is hurting good people.
Those with bad credit are not ne'er-do-wells. Loss of a job and other situations can hurt for too long. |
|
| Above Posted By:
Anonymous
| Tue, 19 Jun 2007 19:57:10 EST |
| I agree with Nancy, there should be a second chance to establish good credit. The mortgage industry will lie all day on stated income loans (if someone could afford the mortgage why not show a paystub unless self employed) knowing the borrower cannot afford the mortgage payment. So much for creative financing when the borrower goes belly up (love those subprime loans). Yet someone who can actually afford the mortgage can't qualify due to past credit mistakes or hardships. So I say piggyback! |
|
| Above Posted By:
Lisa
| Mon, 18 Jun 2007 07:53:14 EST |
| About time people deserve a second chance, some of us in our younger days made very bad decisions and nobody talks about credit scores in the african community. Most african americans don't know what a credit score, or even credit is until its too late, or sadly their parents have used their name for credit purposes and the child walks into having bad credit - never purchasing anything. |
|
| Above Posted By:
vs3
| Sun, 17 Jun 2007 20:42:47 EST |
| For someone who for whatever reason had horrible credit in the past but has now grown up so to speak and cannot get credit on their own and has a score less than 500, I would definately piggyback to get my score up. But I think lenders should only allow verified income for approval (including the monthly payments of the borrowed credit) and if I qualify (can afford the mortgage payment) I should still be allowed to become a homeowner regardless of my past (keyword: past) irresponsibilities. |
|
| Above Posted By:
Lisa
| Sat, 16 Jun 2007 07:26:28 EST |
| The FICO system needs help. I had a couple things that screwed up my credit, mostly medical. I pay 26% apr on a vehicle that I bought to replace a 16 year old car (that is no typo). I pay higher insurance, etc. So you want to talk about criminal, how about highway robbery. If I wasn't making high payments, I could pay off my debts. It just gets discouraging, there are no second chances for people who encounter hardships in life. FICO should consider a second chance program for people like us. |
|
| Above Posted By:
Nancy
| Sat, 16 Jun 2007 02:59:38 EST |
| I agree with Frank. While on its face, if "buying" credit is legal, then the person selling it should be equaly liable for whatever purchases are made. Otherwise there is a strong argument to be made for the fraud side. Question is who can make that case? |
|
| Above Posted By:
BJ
| Fri, 15 Jun 2007 09:28:36 EST |
| Fraud is fraud until the people and the lenders allowing other people's credit to qualify are prosecuted, fined and serve jail time there is no telling what we will see next |
|
| Above Posted By:
John
| Fri, 15 Jun 2007 08:44:50 EST |
| When someone is using something which does not belong to them, it is fraud. It is deceiving a mortgage company as that individual really does not have good credit, and probably would not be able to get the loan. By purchasing a history, it fraudulently represents the risk to the lender. It appears to me to a conspiracy to defraud by the way, co-conspirators are equally guilty. |
|
| Above Posted By:
Frank
| Fri, 15 Jun 2007 06:30:39 EST |
| Of Course, conversely, lower fico scores also rarely get FNMA or FHLMC loans escpecially at higher Loan-to Values, a 625 score can easily make someone fit into a 9% 2 year fixed, depending on certain factors. |
|
| Above Posted By:
Andrew Corbett
| Thu, 14 Jun 2007 15:38:05 EST |
| FICO Score Interest Rate Monthly Payment
760-850 6.274% $1,852
700-759 6.496% $1,895
660-699 6.78% $1,952
This graph is misleading. These rates look like A-paper conventional fixed rates. If so the 660 borrower generally gets the IDENTICAL interest rate as the 760 borrower. |
|
| Above Posted By:
Tim Rogge
| Thu, 14 Jun 2007 13:42:05 EST |
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