Piggybacking? I thought I understood most financial credit and loan practices, but this one was new to me.  People with poor credit scores who anticipate needing a major loan such as a mortgage, can rapidly improve their own credit by riding on the credit history of people they don’t even know.   I was suprised this was possible, and there are even companies who specialize in helping consumers do this!  Apparently it’s not technically illegal, at least yet. And some people are even making a decent monthly income by letting other people use their excellent credit history.  I never thought about letting others become “authorized users” on my credit cards… too much risk there for me. But in this case, it’s carefully set up so that the “authorized users” are not given credit cards or access to any personal information. But once designated as “authorized users” they receive the benefit of years of good payment history on those particular cards.  In a few months time, someone with a poor credit score can rapidly raise their scores to qualify for better loans and rates. Seems pretty shady from my perspective… a mortgage lender wants to know the true and accurate credit history of a potential borrower. All financial risk decisions and mortgage origination is based on the premise that they have accurate information… or at least as accurate as possible. In this case, they are not getting a true picture.  What if someone with really poor credit history gets a loan based on great scores that only recently jumped up? Maybe those borrowers shouldn’t have loans… if they default it costs the industry, and indirectly other consumers, for the cost of that default. I suspect the practice will change with revised trending by the credit scoring companies. They could simply add a trend of credit scoring to see how the credit scores changed over time. If a credit score history was at consistent levels for a long period of time, and then jumped up rapidly in the months before a consumer applied for a loan, that would raise some eyebrows or prompt further investigation.  Or they could shorten the period of time that an “authorized user” benefits from based on the credit history of the original card-holder.  I wonder what other practices occur out there that I have no idea about… probably many! In the world of money people become very creative.
For more information on piggybacking, the article on Yahoo from the APÂ is an interesting read:Â Piggybacking Roils Credit Industry.Â
*** UPDATE - June 11, 2007 ***
It seems the piggybacking scheme is not lost on Fair Isaac Corp after all… the company who began FICO scoring has decided that as of September 2007, adding someone to your credit card agreement as an “authorized user” will no longer benefit them with your entire credit history. The change will not affect “joint users” but a joint account holder is equally responsible for the debt whereas an authorized user is not.  Should be interesting to watch how the credit scoring industry changes over time.
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