"New Credit Score Scam Preys on People With Bad Credit"

Federal and state regulators say it's one of the fastest-spreading new scams in the mortgage industry: Some companies artificially raise loan applicants' FICO scores by 50 to 250 points by implanting credit accounts of people with excellent payment histories into the files of people with bad credit histories.

These companies claim to raise FICO credit scores by 50 to 250 points or more by adding low-scoring borrowers as "authorized users" onto the credit card accounts of people with excellent credit scores.  The positive payment information from such high-credit scoring individuals then flows into the files of those with bad credit.

Federal law permits authorized users to be added to credit card accounts. For example, a parent might add a son or daughter onto a credit card to provide access to credit for the child or for use in emergencies.

Federal law, however, does not limit the number or prescribe the type of authorized users permitted on any single account. Nor does it prohibit the rental or sale of authorized-user designations.  Exploiting that loophole, many companies have emerged offering to buy and rent out the credit card "trade lines" or accounts of holders with high-credit card limits, excellent credit scores and perfect payment histories.


Here's how it works: Imagine you want to buy a house but your FICO score is 550.  You have no down payment, so you cannot find a lender to lend you 100%.  Even if you had the down payment your rate and loan term would not be very appealing.  You sign up with one of these companies now offering to make you an "authorized user" on a credit card account of a person who has great credit and perfect payment histories.

That, in turn, will raise your credit scores very quickly, possibly by 50 to 100 points. If you need higher score boosts, the companies offer two or three additional "authorized user" accounts, at higher prices that often are in the thousands of dollars, and promise to increase your FICO score by as much as 200 points or even higher.

Borrowers with higher FICO scores receive lower rates and better loan terms than applicants with bad credit histories and low FICO scores.  Lenders who believe they are providing mortgages to applicants with excellent credit may be duped into extending credit to individuals who have a tendency to be late paying bills and may not be too reliable when extending credit offers.

Each credit card account can rent for as much as $1,500 to $2,000 for a 180-day usage.  The primary credit card holder receives a fee, often hundreds of dollars for each authorized user added to the account.

The person seeking a higher credit score does not obtain access to the credit card. But within 1 to 3 months of being added to the account, the national credit bureaus incorporate the primary cardholder's ongoing account information into the files of the new authorized user. The score-raising attributes of the primary cardholder's excellent payment history then shows through to the new added user.

These offers may seem attractive and tempting to those who seek to get a higher credit score, but those individuals with bad payment histories will most likely not fulfill their responsibilities when creditors extend their credit lines or offer them a loan.  If they fail to repay a loan they may lose a home and get a foreclosure on their credit file.  Paying thousands of dollars and end up in foreclosure is certainly not a bargain.  Those companies know it and they will capitalize on people’s foolishness.

Remember if your are not credit worthy, you shall not assume certain debt obligations, as you may fall into an even worse financial situation. And you will. Some companies will always make money from irresponsible people.

To Your Success,

Andre Plessis

Andre Plessis
"The Mortgage Guru"
"Andre Plessis is a Mortgage Planner and Author. He helps individuals improve their credit and offer guidance in personal finance. His primary goal is to provide the expertise, guidance and skills necessary to gain financial freedom through real estate and live a debt free lifestyle". 
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