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Credit Enhancement “Piggybacking” Schemes

Many consumers are unable to qualify for loans or financing because of insufficient or unacceptable credit history. Normally, repairing one’s credit history takes significant time and diligence. However, several companies have begun to emerge online that attach consumers with poor credit (renters) to the accounts and credit history of consumers with excellent credit (account holders).

Often called “piggybacking” or “credit enhancement”, this process involves letting another person become an authorized user on your credit card account. As an authorized user, that person immediately inherits the payment history of that account. People seeking to boost their credit ratings typically hitch themselves to folks with histories of paying their cards on time and keeping their balances low, all of which maximizes their credit scores.

In the past, this arrangement has been between family members or friends. Parents are often advised to do it for their college-age or young adult children.

In recent years however, a growing number of companies have begun selling authorized user services. These so called credit-repair companies, which advertise heavily on the Internet, promise that people can push up their scores by 200 points or more. The higher your score, the better the loan terms and rates you can get.

There’s a problem with this service. It allows people, who have no relationship with the primary cardholder, to embellish their credit histories, making it possible for them to get loans for which they would otherwise not qualify.

“This is clearly loan fraud," said Craig Watts, the public affairs manager for Fair Isaac.

Piggybacking has become a major concern to lenders and banking regulators, who are already dealing with historically high mortgage loan delinquencies and foreclosures. The damage could get worse if they approve borrowers who only have an illusion of creditworthiness.

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