Piggyback Credit

PIGGYBACK CREDIT: WHEN PORCINES FLY?

Lenders should be aware of a new scheme whereby potential borrowers with poor credit are intentionally, and artificially, inflating their credit scores through a new fraud technique. The scheme is called credit augmentation, or piggyback credit. The lender will have an otherwise solid (seemingly so from the credit score) borrower default for no apparent reason. Here's how it works:

Let's call the potential borrower "Mr. Krook," who realizes he has a substandard credit score. Krook goes out on the internet and finds a vendor selling seasoned trade lines. The vendor has a network of people with good credit who are willing to make a couple of bucks selling an authorized user account to Krook. Let's call one of these good credit risks "Mr. GC." The vendor presumably charges Krook a fee and then Krook then becomes an authorized user on Mr. GC's account or accounts. Krook never receives a credit card, but Krook now shares, or piggybacks, on Mr. GC's solid repayment history. Nothing has changed in Krooks actual history, but one internet site I visited suggests a score could be inflated by as much as 100 points.

We recommend a stricter underwriting standard to address this problem:

• Less reliance on the credit score.

• Analysis of negative personal information on a credit report which is seemingly offset by positive authorized user history.

• When in doubt, ask for a copy of the authorized user account card. The scheme does not contemplate providing an actual card.

Is this threat real? Last week I had a call from an individual in the Denver area who wanted to create just such a network and needed an attorney to keep it "legal." Let's say this was a rather short telephone call. I also googled variations of piggyback credit and credit augmentation and found numerous operating entities offering this exact scheme.

Fortunately, the industry is responding. Fair Isaac, in a June 5, 2007 press release, announced an adjustment to remove authorized user accounts from consideration by the scoring model in FICO 08, the newest version of the Classic FICO credit score, which was expected to become available to lenders in September, 2007.

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