New Credit Score Boosting Tactic Concerns Lenders
According to a Star Tribune report, a small but growing industry of "credit repair" companies are offering to help people boost their credit scores by adding their names to credit card accounts that have clean records. For several hundred to thousands of dollars, the websites promise to quickly raise scores as much as 200 points, enough to qualify for a loan or obtain a lower interest rate.
Companies will add a person's name to credit card accounts that have little or no balances and no late payment history. The consumer cannot use the credit card but can see a jump in his credit score. For example, one company charges $200 to $2,500 to become an authorized user on a card for 120 days, with older accounts and cards with higher credit limits fetching premium prices because they look better on a credit report.
The practice of renting "authorized user" status is a growing concern for lenders who rely on credit scores such as FICO to determine the odds that a borrower will repay loan.
This is a new tactic of "credit repair" companies, and it concerns lenders. One expert says the new gaming of the credit system "is undermining confidence in FICO.
The Tribune report says Fair Isaac, the company who developed FICO score, is aware of the situation and is working with regulators, lenders and the three major credit bureaus to determine the extent of the problem.
(May 31, 2007)
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