More on Credit Enhancement, from Bankrate.com
It has been about three months since I have written about credit enhancement schemes. Today I bring the issues up again because of an excellent story on the topic that appears on Bankrate.com. In “‘Piggyback’ can lift your credit score,” Bankrate.com staff writer Brigitte Yuille digs deep into what I still believe to be a serious problem in this country.
As I have said before, I have no problem with an individual adding someone to his or her credit account as an authorized user. It’s perfectly legal, and in most cases is done for perfectly legitimate reasons. What I’m not okay with, both as a REALTOR® and private citizen, is someone with a poor credit score or non-qualifying income being able to qualify for a home loan based on an artificially inflated credit score. In case after case, the new homeowner defaults on the loan, which only adds to the mounting problems related to foreclosure and Real Estate and Mortgage Fraud.
It’s called piggybacking, and like the childhood playground game, it involves getting a lift. Only with this piggyback ride, it’s your credit score that gets a boost.
Critics claim it’s lenders who are being taken for a ride.
Piggybacking works like this: After paying a fee, you are listed as an authorized user on someone else’s credit card, someone with a healthy credit rating. You don’t actually get to use the card, but the credit history of that card appears on your credit report, making it more attractive.
Internet sites that make these connections claim that this ride on someone else’s credit history can raise your credit score almost instantly. Higher credit scores mean better deals and lower interest rates on loans.
You will, of course, pay for the privilege — often thousands of dollars.
And why would the credit card holder allow you to piggyback on his or her lofty credit rating? Simple, they get paid, usually around $200 per user per month.
Critics say these sites are gaming the system and call it fraud, claiming it violates federal laws and supports identify theft. They say the credit card holders who make their credit available are putting themselves at risk too.
The “piggyback” sites disagree. It’s legal, they say, claiming that not only are they protected by the law but they are also supported by organizations within the credit industry.
Here’s more, as it relates to the Real Estate industry:
Piggyback firms also say that top mortgage brokers have used the technique for years.
Real estate and mortgage fraud expert Ralph Roberts acknowledges that real estate and mortgage brokers have been telling clients with poor credit scores to piggyback their credit. But, he calls the “artificial inflation” of credit scores an invisible enemy.
“You can’t see what has happened until the home is foreclosed. There’s no tool to detect the scheme,” says Roberts.
Roberts says piggybacking is fraud and the companies that offer it are breaking the law.
“Current U.S. Code on bank fraud says whoever knowingly executes, or attempts to execute, a scheme to defraud a financial institution by means of false or fraudulent pretenses can be fined up to $1 million or imprisoned up to 30 years, or both,” says Roberts.
To read the entire article, visit Bankrate.com.