A reader forwarded me a story yesterday than just had my jaw dropping -- borrowers can apparently rent someone else's credit to raise their own credit score, essentially using a loophole in today's credit rating system to their advantage. Imagine paying $1,800 to move your credit score from 550 to 715, in less than one month. Read that again. And then shudder, especially if you work in the mortgage industry, because it's absolutely true. And, for now, it's absolutely legal.
Only a low credit score stood between Alipio Estruch and a mortgage to buy a $449,000 Spanish-style house in Weston, Fla., a few miles west of Fort Lauderdale. Instead of spending several years repairing his credit rating, which he said was marred by two forgotten cellphone bills and identity theft, the 37-year-old real estate agent paid $1,800 to an Internet-based company to bump up his score almost overnight.
Estruch moved his score from 550 to 715 in less than one month. The best part? He's a mortgage broker, and sees nothing wrong with what he did.
"Everything now is score-driven. I had a great mortgage history, but I got hurt because of my credit score," said Estruch, who also works as a mortgage broker. Estruch said he's current on his mortgage payments.
Thank goodness that credit score didn't have to hold him back for long, thanks to ethical companies like InstantCreditBuilders.com, who arrange for people to be added as an authorized user on the credit cards of complete strangers. The cardholders, not surprisingly, possess stellar credit, which bumps up the score of anyone lucky enough to ride their coat-tails. Of course, this sort of magic-credit carpet ride doesn't come for free:
For those who are renting their credit histories, the pitch is that the money is essentially free. Users of the service don't have any way to use the credit-card accounts. Brian Kinney, 44, a retired Army officer in Glendale, Calif., pulls in more than $2,500 a month by lending out 19 credit-card spots on two old Citibank cards with strong payment histories. Kinney quit his job working at a Farmers Insurance agency and is using the ICB income to tide him over until he starts his own agency.
And if you think those that are renting out their credit histories are making out like bandit, take a look at how well the middle man is doing here:
Jason LaBossiere, who founded ICB a year and a half ago, said his company receives 100 to 150 leads a day -- a number that has been growing -- and those inquiries lead to 10 to 20 new clients a week. ICB charges $900 for the first credit-card account, with a discount for additional ones. The cardholder allowing the piggybacking on his or her credit history can receive $100 to $150 per slot, depending on the age and credit limit of each card. ICB pockets the difference.
And the thing is, this is actually LEGAL? Holy cow. Can you imagine the kind of mess this puts a lender in when trying to do a loan? I can see it now: Lender: Mr. Johnson, you haven't had a job in two years, are a convicted felon, have nearly zero cash saved, and have missed five credit card payments on three different revolving credit accounts in the last two years. Borrower: Yeah, but check out that FICO! 700, baby! Show me the money! Lender: Sure thing. Might be a little bit of exaggeration on my part, but you get the idea. Update: So I'm second to the party on this. Tanta over at CR was cackling about this yesterday. The best part of her post? This:
You cannot also but admire Mr. Estruch, who helpfully provides the name of his mortgage lender to the reporter. I have made many representations and warranties over the years; I have never personally had one falsified in an AP story picked up by the New York Times, nor have I discovered this falsification while sitting in my bathrobe drinking coffee on a rainy Sunday morning at home. What, do you wonder, is American Home Mortgage going to do now? Hope whoever bought that loan doesn't read the papers?