'Piggybackers' Repair Credit, Worry Lenders

By J.W. ELPHINSTONE The Associated Press

Published: Jun 4, 2007

Only a low credit score stood between Alipio Estruch and a mortgage to buy a $449,000 Spanish-style house in Weston, a few miles west of Fort Lauderdale.

Instead of spending several years repairing his credit rating, the 37-year-old real estate agent paid $1,800 to an Internet-based company to bump up his score almost overnight.

The result was a happy ending for Estruch, but the growing practice is sending shivers through the mortgage industry. Federal regulators also are reviewing the practice.

Fair Isaac Corp., the developer of the widely used FICO score, said it will change its credit scoring system beginning this year in a way it contends will end this little-known but potentially high-impact mortgage loan loophole.

Instantcreditbuilders.com, or ICB, helped Estruch boost his score by arranging for him to be added as an authorized user on several credit cards of people with stellar credit who were paid to allow this coattailing.

The pitch to those who essentially are renting their credit history for pay is seductive: You don't need to worry about users of this service receiving duplicate copies of your credit cards, account numbers or any of your personal information. It's essentially free money, they are told.

Brian Kinney, 44, a retired Army officer in Glendale, Calif., pulls in more than $2,500 a month by lending out 19 credit card spots on two old Citibank cards. Kinney's FICO score is above 800 on the scale of 300 to 850.

Lenders are worried they're taking on greater default risks by unknowingly offering lower interest rates than they otherwise would to applicants who artificially boost their credit scores. Their trade group has complained to the Federal Trade Commission and is talking with the credit reporting bureaus in case the practice becomes more widespread.

Estruch paid $1,800 in December for three credit card spots. By January, his FICO score jumped from 550 to 715. In mid-March, he closed on his four-bedroom beige stucco house.

"Everything now is score-driven. I had a great mortgage history, but I got hurt because of my credit score," said Estruch, who also works as a mortgage broker.

ICB charges $900 for the first credit card account, with a discount for additional ones. The cardholder allowing the piggybacking on his or her credit history can receive $100 to $150 per slot, depending on the age and credit limit of each card. ICB pockets the rest.

The computer program that calculates scores is essentially tricked into figuring that the credit renter has a better repayment history when it sees the added accounts, and that helps lift the credit score.

Once the credit card company files an updated report to credit bureaus - leading to a higher FICO score - the credit renter is removed from the account of the person allowing the piggybacking. The credit card's payment history, however, remains on the authorized user's credit report, and lenders have no way of knowing how the credit borrower is related to the cardholder.

Kinney said those borrowing his good credit history don't get his personal information, full credit card number or credit card expiration dates. Any sensitive data are handled through ICB, and Kinney adds the users himself by calling his credit card company. ICB also destroys any duplicate cards that are issued to the credit renter, according to its contract.

"I know the whole thing sounds kind of odd and not very legitimate, but it is for now," Kinney said.