If you have an unsullied credit profile, your reward will be getting loans on the best terms. What if you have the opportunity to further monetize your good credit score? Should you take advantage of this?
Reader Karen sent in a query about a company that is offering to pay people for adding strangers as authorized users to their card accounts. She says, “As you probably know, the idea is that people who have really good credit can make money by ‘lending’ their credit profiles to people who are trying to improve their credit scores, probably by paying someone for ‘credit repair.’
The practice of piggybacking
This practice of adding a stranger to your credit card account for a fee is called piggybacking. It is typically done through a middleman agency, such as Coast Tradelines or Tradeline Supply Company, that entices consumers with less-than-stellar credit profiles and promises to add them as an authorized user to a high-scoring person’s credit card.
That way, the piggybacking person can avail of better loan terms if they are getting a mortgage loan, for one. In return, the person who permits this piggybacking off their credit card gets a monetary payment. The piggybacking person is an authorized user only in name, since they don’t get a credit card or account number and can’t make purchases using that credit card account.
This practice is prevalent enough that the Federal Reserve conducted a study on this back in 2010. According to its research report, this practice emerged into the limelight in 2007 (possibly as a result of the homebuying boom of that period, during which lenders were indiscriminately lending, making so-called NINJA – no income, no job, no asset – loans).
According to the Fed report, the use of authorized accounts provided only a “modest boost on average to individual credit scores” in the overall study group.
“For those individuals with thin or short credit histories, however, the incorporation of authorized user tradeline information may offer an economically meaningful boost to scores.”
The piggybacking could push someone with a “subprime” score into the “near-prime” category, for instance.
FTC eyes misrepresentation issues
Given this boost in credit score, it sounds like piggybacking would be a good idea for those with less desirable credit scores who want to buy a house or a car. The Fed study did not go into the legality of this practice, but the Federal Trade Commission has taken issue with piggybacking.
The agency took action in 2020 against BoostMyScore.net, a Colorado-based credit repair company that promised consumers that it would help them “drastically and immediately” improve their credit scores so that they could qualify for better mortgage loan terms.
The FTC also alleged that the company charged customers upfront to repair their credit, which is a violation of the Credit Repair Organizations Act. And the FTC case stated that the company further violated the CROA with its “misleading use of tradelines and by engaging in a course of business that results in fraud or deception.”
Piggybacking practice skirts the law
The FTC case makes the point that those companies engaged in this practice of selling tradelines (or credit card accounts) could well draw the attention of the authorities. Not only that, it seems there will likely be less of an effect on credit scores than was the case in the earlier years, since lenders have wised up to this practice.
For one, Fannie Mae, the giant home-mortgage guarantee company, has advised lenders that if they believe the authorized user account is not an “an accurate reflection of the borrower’s credit history,” they should exercise their judgment while underwriting and evaluate the borrower’s creditworthiness in the absence of the authorized account. FICO has also made tweaks to its credit scoring model to change the way that it treats authorized user accounts.
Not only that, you could be violating the terms of your credit card agreement by engaging in piggybacking.
Besides, by giving a stranger your private account information, you run the risk of inviting identity theft. So while the practice is not outright illegal, you would be wise to avoid engaging in it.
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