FICO score boost.

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Mortgage lenders today are setting higher loan qualification standards for borrowers with weak credit files. Since they're facing mounting defaults in the subprime segment, they have to. Now there's another issue to contend with. When they study a credit report, the one compiled by FICO, are they really looking at the applicant's true financial background, or has it been artificially boosted by someone else's excellent credit file?

This is what's happening. Companies are turning up on the Internet that offer to marry a stellar credit file with a file that is so-so, or worse. In essence, the high-quality information is shared and that'll help the poor file. These online stores argue that this maneuver will enhance a FICO score from 50 to 250 points. That is a lot. Now, is this legal? It appears to be.

Namely, Federal law allows someone to add an authorized user to his credit card account. Usually it's done within the family, parents for children happens a lot, but the law actually does not limit in any way who can be included in an account. It can be anybody. And that's where the loophole is.

So these Internet shops are purchasing trade lines from people with stellar credit backgrounds and renting them for a nice fee to those who need an upgrade. And the seller gets a cut, too. How about that? Does this mean that home loan lenders have to be even more vigilant now? Absolutely. Loan officers and underwriters have more questions to ask an applicant if something looks suspicious. And make the process take even longer to everybody's frustration.

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Esko Kiuru
Mortgage, real estate and apartment industry analyst - syndicated mortgage, housing and property management blog
My cell: 702-499-1006


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Roberta Murphy
San Diego Previews * Previews Luxury Real Estate - San Diego, CA
Carlsbad Real Estate and Homes
Esko: I had not heard of this tactic before. I can't help but wonder if it impacts the higher score in a negative way....
Apr 27, 2007 12:36 PM #1
Jennifer Martin
Letting License Expire in June 2010 - Santa Claus, IN

Esko - that is scary actually and what happens to the individuals credit if the risky borrower defaults? Does that party become obligated to the loan? I cannot imagine a complete stranger agreeing to do such a thing. Do you know if they're using "ACTUAL LIVING" people? (I know that's a crazy question but crazier things have been done for the sake of identity)

I don't think Realtors should even MENTION that such a program is even available and I would personally not feel comfortable accepting a client if I knew they had done such a thing. Bad Idea and one more reason to rely on the old saying that "If if sounds too good to be true it probably is".

Apr 27, 2007 01:10 PM #2
Esko Kiuru
Bethesda, MD

Roberta and Jennifer,

Unfortunately I don't know all the details about this shady stuff, but it's something we have to be aware of. Believe me, underwriters know about it. There's always something new coming up.

Apr 28, 2007 05:55 PM #3
Dominick Gaccino
Dominick gaccino - Peekskill, NY

while that may boost the score(being an authorised user) it still will not count as a trade line by a lender


usually the borrower needs 3-5(depending on doc type) for 12-24 months(again pending on doc type)


a trade line where client is authorized user will not count.


Trust me, Im an ex underwriter



First Suffolk Mortgage Corp

Apr 29, 2007 09:48 PM #4
Charles Parrish
Auction Brokers & Investors United - Baltimore, MD

Interesting stuff, is it legal?


Apr 29, 2007 09:56 PM #5
Esko Kiuru
Bethesda, MD

Dominick and Charles,

Thanks for your comments. There's always something new to look out for.

May 02, 2007 05:20 PM #6
Steven Shewell
Primary Residential Mortgage, Inc. - Ephrata, PA
The Mortgage Maverick

I have known of this technique for a long time.  Legal?  Perhaps.

Ethical?  Definitely not.  Time will tell how this underhanded maneuver will be handled by the credit bureaus.

May 03, 2007 02:43 AM #7
Esko Kiuru
Bethesda, MD


It seems legal. If the problem becomes acute, the law has to be amended. In the meantime lenders are going to cover the additional risk with higher rates.

May 05, 2007 04:31 PM #8
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