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.