'Piggybacking' your way out of bad credit
By Jeremy M. Simon | Updated: July 31, 2008
See more recent story: 'Piggybacking' gets clemency from FICO
A new practice is allowing consumers with bad credit to boost their credit scores by paying to piggyback onto other people's credit card accounts.
Some businesses are charging individuals with bad credit substantial fees to get added as an authorized user on the account of individuals with good or excellent credit. The practice works in the same way that parents can add a child to their credit card account to help them build credit.
The impact on a consumer's credit score varies depending on what else is contained in their credit report. However, according to Instantcreditbuilders.com or ICB, one company involved in the practice, a single borrowed credit card account can boost a credit score by 30 to 45 points.
For two credit card accounts, ICB says, an authorized user can expect an increase of 60 to 90 points, while five credit card accounts can lift a score by 150 to 205 points.
This rise in credit score occurs because the computer program that calculates scores is basically tricked into thinking the authorized user has a better repayment history based on the added accounts.
After the credit card issuer files an updated report with the credit bureaus, bumping up the person's credit score, the credit renter is then taken off the account of the person who is being paid for the piggybacking.
Even so, the credit card's payment history will appear on the authorized user's credit report forever. Lenders are unaware of how the credit borrower and cardholder are connected.
The cardholders with excellent credit get paid for their participation, and are informed that the newly authorized users will not receive duplicates of their credit cards, account numbers, or any other personal information. Any sensitive data goes through the business in charge of matching up accounts to bad credit consumers.
While the arrangement may seem like a good one for the parties involved, others are less happy about the growing practice.
Federal regulators are reviewing the practice, and FICO score creator Fair Isaac has indicated plans to alter its credit scoring system beginning later in 2007 to combat what it views as a little-know but possibly high-impact mortgage loan loophole.
Fair Isaac plans to announce shortly that future versions of FICO score methodology will no longer include authorized user accounts.
Still, Fair Isaac acknowledges that the practice may not be so easy to wipe out, since some lenders create their own scores that factor in authorized user accounts. Additionally, consumers other than those looking to buy their way out of bad credit could be hurt by the change, such as college students on their parents' accounts and spouses with no credit history of their own.
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