End of the credit Piggy back ride?

An article in Bank Lawyer’s Blog talks about piggybacking credit being “the latest and greatest” way to improve one’s FICO score. With Piggybacking, someone with a subprime score (“a Subprime Risk”) can become an authorized user of someone else’s credit without actually being authorized to incur credit on the better credit risk’s (“BCE”) accounts. The subprime Risk then gets the benefit of BCE’s credit score and resultantly, it raises the Subprime Risk’s FICO score. This is called Piggybacking. It is neither the latest nor the greatest.
Piggybacking has been allowed for a number of years. This exception to the Fair Credit Reporting Act was designed to allow an adult child to build credit using the benefit of the parent’s credit score. It has, unfortunately, been abused. Indeed, there are companies that will pay hundreds if not thousands of dollars to BCE’s for the benefit of leasing their better FICO scores to Subprime Risks. This loophole to allow a young adult to build credit has been hijacked by those who are, for whatever reason, just plain poor credit risks. Common sense would tell you that Piggybacking results in deception to credit grantors and the granting of credit to those who are simply unable or handle or manage the credit responsibly. When this happens, the credit grantor is the first one to eat these losses. However, these losses are ultimately bourne by the consumer.
Fair Isaac, the company that invented the FICO score back is wise to this perceived industry abuse. There is talk in the industry that Fair Isaac is in the process of re-tooling the FICO score to close this exception to the general rule that everyone’s credit must be a reflection of one’s own credit history. Unfortunately, like any other war, there is collateral damage. In this case, it is our children.
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This entry was posted on Saturday, June 16th, 2007 and is filed under Fair Credit Reporting Act issues . You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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