My credit stinks. Can I borrow yours?

Marketplace Staff Jun 8, 2007

My credit stinks. Can I borrow yours?

Marketplace Staff Jun 8, 2007

TESS VIGELAND: Matchmaker, matchmaker, make me a match. Find me someone with a better credit score than I have, so I can just borrow some good credit.

Lenders are worried about a growing number of people who’ve discovered a fast way to improve their credit ranking: Just become an authorized user on a stranger’s credit-card account. But you’ll pay big bucks to the middlemen who offer to make that match. And how ’bout the question of whether this is legal – much less ethical? We asked Marketplace’s Bob Moon to find out the real score.

CREDIT SCORE COMMERCIAL: I’m thinking of a number, between 450 and 850. Do you know what it is?

BOB MOON: It’s been hard to miss commercials like this one lately. Credit bureaus have been making a lot of money selling us everything they know about us:

CREDIT SCORE COMMERCIAL: It’s my credit score, and it happens to be 720. The higher my credit score, the better chance I have of saving a lot of money.

It’s true: Those with the best scores can qualify for much cheaper rates on a mortgage, auto financing, even insurance. And that has recently given rise to a whole different kind of cottage industry that’s been making a lot of money manipulating those credit scores. In exchange for fees of hundreds and even thousands of dollars, these middlemen promise to match you up with a stranger who will, in effect, rent you their good credit.

Now, the credit industry is moving to close the loophole. And personal finance author Liz Pulliam Weston says that’s an unfortunate development for many who never intended to abuse the system:

LIZ PULLIAM WESTON: It’s kind of a sad thing, because this technique which we call ‘piggybacking’ has been something parents could use to help their kids get started with credit, a spouse could use to help the other spouse get over a credit glitch. And basically what it involved was, the person with the better credit would add the other person to their credit card as an authorized user, so their good history with this credit card would be imported to the other person’s credit file.

Michigan real estate broker Ralph Roberts added his teenaged daughter to one of his accounts a while back to see how it worked.

RALPH ROBERTS: Couple months later, we checked her credit. And she now had 19 years of credit history, and she wasn’t 19 years of age yet.

And she hadn’t even had her own credit card. Roberts says that’s not fair – that everyone should be responsible for their own credit history, not borrowing somebody else’s. He says abuse of the trick has exploded:

ROBERTS: It’s really widespread. I was on the Internet doing some research on this, and there’s new sites popping up daily offering these services. This is like one of the cancers of home ownership. You shouldn’t be able to enhance your score to entice a lender to give you a loan.

Tom Quinn is an executive with the credit-scoring company Fair Isaac, the name behind the formula for so-called FICO scores. That’s the industry standard for ranking your likelihood of paying your bills. He told us authorized-user credit-card histories will no longer be considered in the next generation of FICO scoring, due to be rolled out starting this September.

TOM QUINN: Our early research shows that approximately 75 percent of the consumers with a credit report history will see no impact with this change.

Which means one out of every four could see their FICO scores change. And Liz Pulliam Weston, the author of “Your Credit Score,” says many might be in for a rude surprise.

PULLIAM WESTON: If you’ve been added as an authorized user to someone’s account, and this information suddenly disappears from your file, if your scores aren’t already high to begin with, you could see a fairly sizeable drop in your credit score because of that.

It’s at least possible that some credit-card lenders could seek to boost rates for those card holders.

It could be a year before the changes are fully implemented, and in the meantime, Weston fears some consumers might be tempted to try goosing their scores.

PULLIAM WESTON: I would just be very careful with this, because I think now that it’s been publicized, you’re going to see a lot of companies come out of the woodwork promising to do this. And what they’ll actually do is just take your money and run.

The Federal Trade Commission has said it’s investigating the practice. Authorities in at least two states – Nevada and New Hampshire – are already calling it fraud.

Chicago Sun-Times personal finance columnist Terry Savage thinks anyone who’s engaged in the practice is playing with fire.

TERRY SAVAGE: I will be surprised if some enterprising U.S. attorney doesn’t bring up a test case. I would suggest that they might all be implicated if some U.S. attorney decides to consider this bank fraud. It’s certainly a risk not worth taking.

Savage says it’s also not fair to all the others who do play by the rules. In the end, she says, we all pay.

In Los Angeles, I’m Bob Moon for Marketplace Money.

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