Your Credit History Could Be Worth Thousands: The Loophole That Can Raise A Poor Credit Score

credit card rental car insuranceDisclaimer: I always have a difficult choice on whether to report these loopholes because even if they may technically be legal, they certainly are an abuse of the intended law. I do not recommend that people participate on either side of this scheme to raise poor credit scores. That being said, it does exist and I try to pass along to people information of what is going on in all areas of personal finance.

There are a growing number of companies on the Internet that claim they have found the perfect loophole that allows them to boost the credit scores of those with bad credit without breaking the law. They are able to do this by exploiting a common way that children first gain a credit history – piggybacking upon someone (usually a parent) that has good credit by becoming an “authorized user” of the person with a good credit history.

While the authorised user is meant to help children and family members that have little or no credit establish it, the Internet companies are using it to inject the stellar credit history of someone into that of someone with poor credit. This is accomplished by finding people with credit scores above 700 who are willing to add people with low credit scores to their accounts as authorized users. When authorized, all the positive aspects of the high credit score become part of the history of the person with poor credit thus quickly inflating the poor credit score.

Why would a person with a great credit score let someone with a poor credit score be an authorised user of their credit card? The key is that the person with low credit never receives the credit card to use. It is instead sent to the person with good credit who keeps is so that it won’t actually be used. The game is played merely to raise the credit score of the person with low credit.

Is this all legal? It depends which side of the debate you’re on. Federal law permits people to add authorized users to credit card accounts and there is nothing that says there are limits to the number of people that can be added to an account. There is also nothing specifically stated in the law that currently prohibits someone from renting or selling the authorized user designation. This is how the companies are able to operate and still technically be within the law.

For those who have bad credit, it’s costly. It can be anywhere from $500 to over $2000 to obtain an authorized user account on a superior credit history. For this price, the companies claim that they can dramatically improve poor credit scores in as little as a month’s time. Some claim they can raise a person’s score by as much as 200 points in this short amount of time while 100 point increases are normal.

For those letting people use their credit history, there is big money to be made. With many people desperate to increase their credit scores, these sites claim that those with a superior credit score can earn thousands of extra dollars simply by letting others latch onto their good credit.

The companies claim that one good credit rating can get as many as 100 authorized users onto an account and can pay anywhere form $100 to $600 per authorized user depending on how good the credit history is. The length of use is usually six months. That makes the potential earnings for someone whose good credit is worth $300 per authorized user at $60,000 a year.

There are definitely some large risks involved. While the credit card doesn’t actually go to the person who is authorized to use it, it seems that it could be fairly easy for them to obtain an additional copy if they desired. Knowing that you have a good credit history and therefore likely have high limits on your credit cards, it may even encourage people to do so. If they did, they could spend as much as they wanted and you would be responsible for paying 100% of it back since you designated them as authorized users.

All this has caused great concern from the credit reporting agencies who have taken the issue to the Federal Trade Commission which is currently investigating.

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15 Responses to Your Credit History Could Be Worth Thousands: The Loophole That Can Raise A Poor Credit Score

  1. poundwise says:

    The article is accurate and hopefully will help educate people about this practice.

    However, participation in this is incredibly stupid on the high-score person’s end. Even if the card is not sent to the poor credit score person, they have all kinds of rights and access to the account.

    Anything you receive to participate hardly outweighs the potential negatives. Plus, its certainly participating in a deceitful practice. I can’t imagine extending myself, in this way, to help strangers with bad credit by using my good credit.

    While these shady companies sell the idea of poor credit score folks as a quick and easy remedy, I can’t see many people with a good score, and good sense, participating. I rarely pull out the ‘stupid’ word but it applies here.

  2. Cindy says:

    This practice can only end with the credit companies and credit reporting bureaus changing their rules. They could stop allowing “authorized users” and only allow a joint user. (Although this seems unlikely because the credit card companies want us to have as many ways to spend as possible.) What’s worse is that the credit reporting bureaus might stop calculating your FICO (or related) score based on the adopted credit history by being an authorized user. This would be BAD for all honest people who need to build their credit score.

    My husband is not an American, so when he moved here, the only way we could buy a house was to add him onto all my credit cards. Please don’t participate in this process and ruin it for all the honest people out there.

  3. vsjhoc says:

    Why is it “honest” to use the AU option for someone who is a family member as opposed to someone who is a perfect stranger and paid for it? It’s the same net effect: you get credited (pun intended) for a credit history that you had no part in building.

  4. yummy says:

    Personally I think the best way to raise your credit score it to pay your debts in a timely basis and not spend more than you make.

    Then again because I don’t have a debts it really doesn’t matter to me. I don’t buy what I can’t pay for 99.98% of the time and if I do get into debt I’ll make sure I make timely payments.

    I drive those banker types and credit card companies crazy with my old fashioned attitudes

  5. Jason says:

    The things that people will do to make a buck never cease to amaze me…

  6. m says:

    In response to vsjhoc, a family member often does have a role in helping the other person build their good credit in a way that a stranger does not and thus deserves to benefit in a way that a stranger doesn’t.

    For example, a spouse, parent, child, or other relative may play a role in the family’s financial health by either contributing money to pay credit card bills, by helping in other ways so the cardholder is free to use his or her money to pay off c.c. debt, or by even doing something as simple as making sure the bills are paid on time, even if he or she doesn’t pay them from his/her own money.

    I have a credit card that is in my name only but obviously my spouse contributes in significant ways to my financial and other types of health, which allows me to keep my good credit. Therefore, though the credit is in my name, his contribution to our home and family are a large part of what allows me to continue to maintain that good credit and thus he deserves to benefit from that good credit as well.

    That’s why a spouse, or another family member, or even possibly a friend or roommate can be more deserving of sharing good credit, so long as that person indirectly or directly plays a role in the cardholder obtaining or maintaining that credit. The same cannot be said of an absolute stranger.

    For people who contribute to a cardholder’s good credit to lose this chance to build good credit history because some people are abusing the law is a shame.

  7. vsjhoc says:

    m –

    Thanks for your response. I could agree in theory, but the problem is that the credit card companies, credit reporting agencies and FICO can’t distinguish between someone who had a direct role in helping the cardholder maintain their good credit, someone who had nothing to do with it, and someone who merely paid a fee.

    I think the days of authorized users being added to credit card accounts are numbered.

  8. mas says:

    Well, the person earning money by lending their superb history to someone else could of course protect himself from abuse.
    Noone forces em to use their main credit card for this. They order a new credit card and have a very low limit set on it deliberately and then use this to add the authorized user to. This way the risk is very limited and if the payment is sufficient then it pays out.
    By the way, isnt the credit rating also influence by where you live? Renting a mailbox in a very high class area may also be an idea to boost the values then?

  9. vsjhoc says:

    mas – My undestanding (of this practice I consider unethical at best) is that in order to “rent” your credit line to an AU, you need a minimum of 2 years’ perfect history, so a brand new card wouldn’t be accepted. And the cardholder would need to have a substantial credit limit on that card.

    Credit scores are geography-blind, so it doesn’t matter where your address is.

  10. Scott F says:

    I could really benefit from this. Is there anybody out there who has done this successfully and increased their score? Which site did you/they use?

    Just FYI, Im a computer guy who had a score in the low 700’s then lost everything in the dot com fallout and now I cant afford the Porsche Boxter I want because my current score is still too low for reasonable interest rates.

    Thanks for any additional info.


  11. wes says:

    i would like too bye a house but my credit is very bad is there any thing I can do.?

  12. In Deep Debt says:

    I’m not sure I would allow anyone to piggyback on my credit. It sounds like a quick way to ruin your credit, maybe not immediately, but eventually.

  13. jr says:

    Why is it wrong for a person with bad credit to improve their score throuhg being an authorized? Isnt it just as bad for a person with great credit to be hurt because they are an authorized user when they dont want to be? Come on people, credit reporting agencies cant have it both ways. The only way to stop this is for Experian, Transunion, and Equifax no longer use this on your credit report. Keep in mind you the consumer are not a customer to credit reporting agencies, but the credit reporting agencies themselves.

  14. aimkevinwolf2k5 says:

    I’m from South America but I’v been living here since I was very young. Being only 20 now I’v pretty much had to learn things by experience.

    I did’nt know the concept of “Piggybacking” and “AU’s” until very recently. From what I understand, those with low credit only have until September to Piggyback with someone before FICO changes there formula. My guess is it will limit or eliminate the positive affects of someone with low credit piggybacking.

    Everyone seems to have their own opinions, but it’s easier for those with ok/great credit to be against “piggybacking” – Not having the credit needed to do the things you need to or to purchase a home sucks, especially for single parents, those with disabilities, & the list goes on. Those who say people should budget better, manage better etc have probably always had doors of opportunity to do so.

    I pay all my bills on time, manage all income, expenses, & savings in a custom spreadsheet & my credit score is increasing, but not fast enough to get a decent mortgage at the age I plan too. Piggybacking should be carefully considered and steps such as background checks and income verification should be considered by the borrower to limit risk. Its a great opportunity for those less privileged to get to a better place.

  15. Humanus says:

    It looks like some half-official hacking.

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