Credit Score Boosting Offers for Home Buyers Trouble Federal and State

[liverichly]

Thought everyone here can benefit from this info:

Credit Score Boosting Offers for Home Buyers Trouble Federal and State Officials

by Kenneth R. Harney, Apr 9

Federal and state regulators say it's one of the fastest-spreading new scams in the mortgage market: Internet-based companies that artificially raise loan applicants' FICO scores by 50 to 200 points by implanting credit accounts of consumers with outstanding payment histories into the credit files of borrowers with low scores and bad payment histories.

Worse yet, officials say, the companies may not necessarily be breaking any law themselves, even though their clients may be committing fraud.

Here's how it works: Say you want to buy a house but your FICO score is subprime -- a 580 mid score. You sign up with one of dozens of companies now offering to make you an "authorized user" on a credit card account of a person with a perfect payment history and a high credit limit.

You will not physically receive the credit card, and thus you won't be able to charge anything on that account. But as an authorized user, all the years of perfect payments on the card will be transferred into your credit files at the national bureaus -- Equifax, Experian and Trans Union.

That, in turn, will raise your FICO scores almost immediately, possibly by 50 to 100 points. If you need higher score boosts, the Internet sites offer two or three additional "authorized user" accounts -- at package prices that often are in the thousands of dollars -- and promise to push up your FICOs by 200 points or higher.

Nevada's Mortgage Lending Division recently issued a fraud alert on such services. It also warned consumers and brokers who use these companies in connection with loan submissions that they will be "subject to administrative action and potential criminal penalties."

The Federal Trade Commission says it is aware of these firms, and is looking into what, if anything, to do about them. A spokesman for one of the credit bureaus, Experian, said "piggybacking" schemes involving authorized user accounts "are nothing more than new credit repair schemes to charge consumers hundreds of dollars to be added to another person's established credit account for the purpose of raising the first person's credit score."

Mortgage loan applicants with higher FICO scores receive better quotes -- lower rates and fees -- than applicants with subprime 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 with terrible repayment histories.

Websites such as www.addatradeline.com offer to "rent your credit cards" for a fee -- often hundreds of dollars -- and then sell those accounts to people with low FICO scores. For example, a Visa card with 15-plus years of on-time payments and a $50,000 credit limit might command a fee of $1,500 to $2,000, according to Adam Wheeler, owner of AddaTradeline.com. The primary card holder would receive 20 percent of that fee -- $300 to $400 -- every time it was sold to a new applicant. Wheeler said that as many as 80 to 100 authorized users could be added to that single card account without triggering alarms at the credit bureaus.

Federal law sanctions authorized users on credit accounts -- typically children or other relatives who are permitted by the primary card holder to be co-users of the card. But federal law does not limit the number or type of authorized users permitted on any account, nor does it ban the sale or rental of authorized user relationships.

In an interview, Wheeler said his business "is legal," but he conceded that "some people might say it's unethical." He also said he does not condone fraud against mortgage institutions. "If (clients) are going to lie to lenders," he said, "that is not good."

Consumer Advisory issued in Nevada (.pdf)

[SugarNspice]

Yep, just another way to make money. They ruin the whole AU process, and turn it into a way to make money.

[tazunemono]

The whole credit reporting system infrastructure is years, perhaps a decade or more behind the needs of the people it serves. If my score is allowed to drop by 50 points because of trying to repair my credit, shouldn't I be allowed to add 50 points or more as long as it's not illegal? The whole process moves like a two ton heifer with lead in its a$$. If this is what it takes for some to buy a house, aren't they just using what resources are available to them? There's nothing unethical about it...don't hate the player, hate the game!

[amortgageman]

Thanks Shane.

[firstsource]

What I feel is insane and against everyone's best interest is when you pay off a bill/collection that is lets say 5 years old. (You are just paying it because you feel you owe the money, don't have to, just feel that you should) The result is that your credit score drops a lot. In this age of sophisticated computer programs the bureaus should tweak their models to allow an old collection, be it 1 year or 6 years old and not trash the payer's score.

More creditors would end up with getting a lot more money.

Charles

[momof5]

One thing I don't think the "renters" are paying attention to...

"..you don't get the card...", but the truth is, ONCE you ARE an authorized user, you can call the cc company and get a card and use it. I think this is a huge risk! Legalized ID theft. Can you imagine going into court and telling a judge, "yes, I made him an AU, but it was ONLY so it could be added to his credit report! He wasn't actually supposed to get a cc and use it!"

[momof5]

What I feel is insane and against everyone's best interest is when you pay off a bill/collection that is lets say 5 years old. (You are just paying it because you feel you owe the money, don't have to, just feel that you should) The result is that your credit score drops a lot. In this age of sophisticated computer programs the bureaus should tweak their models to allow an old collection, be it 1 year or 6 years old and not trash the payer's score.

More creditors would end up with getting a lot more money.

Charles

You are SO accurate with that Charles! Heck, I even stopped disputing old collections because when they are 'verified' and a new date of status is entered, it tanks your score 10 - 20 pts.

[2ndTimeAround]

Thank you for this information, I have a retired borrower right now we are waiting for the results of a credit disbute.

Something like this - I told him through a family member or friend, could only raise their scores.

.

[mattandallismom]

The whole credit reporting system infrastructure is years, perhaps a decade or more behind the needs of the people it serves. If my score is allowed to drop by 50 points because of trying to repair my credit, shouldn't I be allowed to add 50 points or more as long as it's not illegal? The whole process moves like a two ton heifer with lead in its a$$.

Right on!