What’s Behind Those Offers to Raise Credit Scores
January 19, 2008 9:01 AM   Subscribe

What’s Behind Those Offers to Raise Credit Scores - You've all heard the ads, here's how those companies try to raise your credit scores. The credit industry hates it, because it works, at least for now.
posted by Argyle (47 comments total) 7 users marked this as a favorite
Kinda reminds me of the standardized-test-preparation racket. It's hard to develop a reliable measuring system when people have such high incentive to game it.
posted by box at 9:21 AM on January 19, 2008

For a $1,399 fee, TradeLine adds the borrower’s name to a stranger’s recently paid-off loan just before the account is closed. The account, with its perfect payment history, is then added to the borrower’s credit record in 30 to 45 days.
The original borrower is unaware that a new name is being attached to the account, he said.
How is that possible?
posted by crawl at 9:36 AM on January 19, 2008 [2 favorites]

The credit industry hates it, because it works, at least for now.

Well, there are good reasons for consumer advocates to hate it too. As the article points out, it may be that the consumers end up stuck with a defaulted debt, which won't help their FICO. And some of these tactics are just plain fraud (fake paystubs?) that are going to get the consumer into trouble. Plus, FICO is going to figure out a way pretty quickly to close this loophole, and then the consumer will be out the astronomical $1,399 fee. And to make matters worse, naive consumer who purchase this crappy $1,399 credit repair package most likely don't have the money to pay for it and will just end up further in debt and with worse credit ratings. And how much do you want to be that the credit repair companies engage in abusive practices to collect on their own debts?

There's a reason that there are many state and federal laws protecting consumers against credit repair businesses. (Eg Credit Repair Organizations Act. Maryland's Credit Services Business Act). They're inherently shady.
posted by footnote at 9:36 AM on January 19, 2008

How is that possible?

Indeed. Holy shit! First, how can they do that?

Second, what happens to the credit score of the "stranger"? Does it go down? I have excellent credit ... do I need to protect myself against this somehow? Some extra layer of caution when my loan gets close to being paid off?

Normally I brush off this kind of caveat emptor scaremongering, but ... this is stunning.
posted by intermod at 9:55 AM on January 19, 2008

Anyone have a working bugmenot user/pass for NYT?

bugmenot is down for exceeding bandwidth.
posted by batmonkey at 9:56 AM on January 19, 2008

posted by M.C. Lo-Carb! at 10:01 AM on January 19, 2008

Err, I've never had an NYT account and I didn't see a password prompt from the NYT link at all (Firefox 3-beta2). I thought they took down their paywall months ago.

Navigating to the FPP link in Safari with Privacy Mode on doesn't result in a password prompt. Perhaps you should clear your cookies?
posted by sdodd at 10:12 AM on January 19, 2008

How is that possible legal?

posted by Thorzdad at 10:14 AM on January 19, 2008

Meh, The entire idea that my purchasing history is being collected and filed makes me really really ticked off. Anything that makes the system less accurate is A++ in my book. Heck, if there was a system where I could make micropayments in exchange for the credit reports being flooded w/ just random false data, that would be super special awesome. Every 5 cents is a new imaginary person with the same name as somebody else and random credit.

I think im just going to save my paycheck and buy a house with a mafia-style briefcase o' cash.
posted by SomeOneElse at 10:26 AM on January 19, 2008 [6 favorites]

Yeah, why not just sign up for an NYT account people? I've had one since '99 or something. It's really not that big of a deal.

Frankly, I don't even see why the credit industry itself is legal? Why on earth are 3rd parties allowed to collect data about us, sell that data however they please, and require us to be responsible for correcting errors but only by following their own byzantine rules? It's bullshit. Not only that, we only get to access that information once a year for free, otherwise we have to pay for our own data.

Also, if people were adding their names to loans with the person's consent, I wouldn't see what the problem was. I'd be happy to let someone add their name to a loan I was about to pay off for $1300. But if it's possible to add people's names without the original borrower knowing about it, it's a "loophole" that ought to be closed.
posted by delmoi at 10:32 AM on January 19, 2008 [10 favorites]

>it's a "loophole" that ought to be closed

it has/will be, from page 2:

Last spring, lenders began complaining to Fair Isaac that this program, known as credit piggy-backing, would undercut the credibility of credit scores, Mr. Watts said. As a result, Fair Isaac, after consulting with lenders and federal regulatory officials, decided to change its scoring formula to ignore “authorized users” when tallying a person’s FICO score. The formula change is expected to take effect at two of the credit bureaus — Experian and Trans Union — by this spring, Mr. Watts said.
posted by panamax at 10:38 AM on January 19, 2008

The incentive to game the system is high because the system is fundamentally flawed to begin with.

When, by chance, I don't receive a water bill for a month due to any number of circumstances, and that $12 bill slips my mind and I don't get enough of a delta from my normal monthly payment amounts to cause me to investigate, lo and behold, I may end up with the water company reporting me as a 30-day late to the credit bureaus.

And then, there's a nice little law that allows each and every company that I have credit with to up my rates to their published maximums simply for being a month late on a $12 water bill.

Bullshit, Thy Name is Universal Default.

Not only this, but be aware that most states have NO LIMIT on the interest a creditor is allowed to charge. How about 35%? How about 100%? Don't buy the crap that sub-prime mortgages were "predatory lending," jumping the interest on a house loan from 5% to 9% when Universal Default lets them take you from your nice and comfy 12.99% to prime + 20.

Yeah, I'd game the system if I felt I needed to badly enough. Universal Default is a stain on the system and almost singlehandedly makes borrowing the most dangerous thing one can do with their money.
posted by chimaera at 10:44 AM on January 19, 2008 [2 favorites]

they better be careful who they pick to piggyback on. i hung up my lawyer sword and shield in 1995, but i didn't forget where i put them.
posted by bruce at 10:57 AM on January 19, 2008 [1 favorite]

Thy Name is Universal Default

Citi stopped doing that, at least.
posted by panamax at 11:02 AM on January 19, 2008

For the umpteenth time, NYT shutting down Times Select does not equal NYT no longer requiring registration.
posted by emelenjr at 11:04 AM on January 19, 2008 [1 favorite]

Anyone have a working bugmenot user/pass for NYT?

I'll help you sign on using delmoi's account. First, PayPal me $1,399.00
posted by hal9k at 11:08 AM on January 19, 2008 [5 favorites]

Anything that subverts the system the credit industry has set up through their own graft and fraud is fine by me. It's called karma and it's a bitch.
posted by photoslob at 11:09 AM on January 19, 2008 [6 favorites]

bruce: "i hung up my lawyer sword and shield..."

That like long underwear and a cape?
posted by ZachsMind at 11:12 AM on January 19, 2008 [1 favorite]

How is that possible?

It's possible because credit scores are a proprietary invention of the credit-reporting agencies. Credit scores are mindlessly calculated using a few heuristics to get a result. Thus, it is easy to game the system because the system is gamed to begin with.

If you want to see if someone has good credit, look at their paystubs and a credit report. Any "piggy back" loans would be quickly considered irrelevant if you saw a bunch of delinquent credit card balances and late-paid bills.

Similarly, some people might have a lower credit score, but that's because they paid off their mortgage long ago, use a debit card, but are forgetful about sending in their utility bills a couple of times a year.

Your credit report is your own property, which is why you can get it for free. A credit score is a proprietary invention of corporations that is sold to business for profit. If someone is screwing up their system, well-- sucks to be a credit-reporting corporation.
posted by deanc at 11:16 AM on January 19, 2008 [1 favorite]

That like long underwear and a cape?

Careful, insinuendoes like that are inflammatory, defamatory and adjudicatory.
posted by Blazecock Pileon at 11:39 AM on January 19, 2008 [2 favorites]

I'd be happy to let someone add their name to a loan I was about to pay off for $1300.

I suppose, in theory, that by having people who have bad credit scores able to artificially raise those scores, then in the medium and long term, the cost of borrowing money will go up for everyone since there can be more loan defaults predicted.
posted by Rumple at 11:40 AM on January 19, 2008

no zach, long underwear and a cape are what i wear these days in occasional appearances as the superhero "snarkman".
posted by bruce at 11:40 AM on January 19, 2008

How is that possible?

I was very confused when reading this article as well - how exactly does TradeLine add a new name to a stranger's account without the stranger knowing about it? The lenders report these transactions to the credit agencies; how does TradeLine have any standing to mess with the data? And why would you write an entire article in the NYTimes without explaining this?
posted by yarrow at 12:16 PM on January 19, 2008 [4 favorites]

This post inspired me to check and I was disappointed to find that as of June 6, 2007 one of these credit scumbags has a file on me thanks to my new landlord, and now all sorts of scumbags. (Why the check by my old landlord years ago didn't create a file, I don't know.) At least the other two still seem to have no idea who I am.
posted by TheOnlyCoolTim at 12:56 PM on January 19, 2008

I always thought, nah it is too conspiratorial to have a mysterious system that assigns people credit scores with almost zero transparency and penalizes you for not using credit cards and loans and rewards you for carrying debt. It is a mathematical mafia. Home prices are high because people have a lot of easy credit? That means I have to take out loans just to own a home, simply because other people are doing it. Leveraging to buy assets is not new, nor intrinsically bad, but it can create a bad, bad culture.
posted by geoff. at 1:09 PM on January 19, 2008

Anyone have a working bugmenot user/pass for NYT?

For Bog's sake, sign up with a throwaway hotmail account or something, and quit this public bellyaching over a harmless free registration system. WE DON'T CARE.
posted by dhartung at 1:23 PM on January 19, 2008 [5 favorites]


Don't count me in your we.
posted by Civil_Disobedient at 2:03 PM on January 19, 2008 [1 favorite]

That like long underwear and a cape?

Anybody mentioned robe and wizard hat?
posted by ersatz at 3:09 PM on January 19, 2008 [2 favorites]

What a disgusting practice. But it seems to be pissing off the right sort of folks, too. Unlike us poor sheep.

Our lives are so fu**ed.
posted by fourcheesemac at 3:15 PM on January 19, 2008

By which I mean "fucked."
posted by fourcheesemac at 3:15 PM on January 19, 2008 [1 favorite]

Don't you mean lawyer shield and magic helmet?
posted by zorrine at 4:01 PM on January 19, 2008

I finally found an explanation of how they do this:
TradeLine, Stearns says, has contracts with several banks -- he declines to identify them -- that have agreed to add TradeLine customers' names to the records of loans recently paid off by the banks' customers. These loans are known in the industry as dormant.

The banks are paid $500 to $700 per transaction, Stearns said. It is unclear if the person who took out the now-dormant loan receives any compensation.

The addition of a TradeLine customer's name to a dormant loan doesn't affect the original borrower, Stearns said, because the TradeLine customer is given his own loan account number while the original borrower keeps his.

That is common practice when assuming a live loan, banking experts say. Such loans are frequently taken over from original borrowers, such as when someone buys a car from a person who still owes money to a financing institution.

Banking experts said that taking over a loan that had been paid off -- a situation in which a person would get credit for the account's paid-in-full status even though he had nothing to do with settling the debt -- was unusual.

"I've never heard of this before," said Frank Newman III, president and chief operating officer of Wachovia Corp.'s Western banking group. "I can't imagine a lender going along. This is taking gamesmanship to a whole new level."
posted by footnote at 4:03 PM on January 19, 2008

I suppose, in theory, that by having people who have bad credit scores able to artificially raise those scores, then in the medium and long term, the cost of borrowing money will go up for everyone since there can be more loan defaults predicted.

If it makes US financial institutions actually make allowance for the defaults we all know they'll be seeing over the next few years, I'm all for it.
posted by pompomtom at 4:37 PM on January 19, 2008

"It is unclear if the person who took out the now-dormant loan receives any compensation."

By which the author means "it's clear that the person who took out the now-dormant loan does not receive any compensation".
posted by clevershark at 4:41 PM on January 19, 2008

That's totally bizarre. I would be very interested to know which banks are dong this. (If they really are; sounds pretty sketchy to me.) Lenders lend money based on people's credit scores; I don't know how it could be worth it to them to fuck with the system and risk legal blowback for TradeLine's $700.
posted by yarrow at 4:44 PM on January 19, 2008

I signed up for Lexington Law a couple of years ago. They basically write a couple of letters a month on your behalf to either businesses or credit reporting companies asking for verification of debt, that kind of thing, or if you instruct them, actually challenging the debt. After a few rounds of this, negative credit items start to fall off your report. You can totally do this yourself, but it's been worth the cost to me (something like $40/month) since I am too lazy to regularly write this kind of letter. I also like how when the credit bureaus do bother to write back, they're always pretty whiny and pissy about it.

Some people seem to think this is some kind of scam (like, paralegals write the letters on your behalf instead of attorneys, and some people don't seem to understand that when you give an attorney "power of attorney," they can write letters as you), but I think it's a fair price for something I was too lazy to do myself. Ultimately, they pretty much got rid of all the negative items on my report except for the ones that were at least semi-legitimate. (I'm not going to pay a parking ticket I got five years ago in a state I'm not going back to.) The ones they did get rid of were things like AOL continuing to charge a credit card after a) I had cancelled the AOL account, and b) I had cancelled the credit card! It just wasn't worth my time to chase this down with AOL or the credit card company.

It's annoying that I'm responsible for fixing something that this bogus industry screws up in the first place, but other than that, I'm a happy "credit repair" customer.
posted by Hello Dad, I'm in Jail at 5:58 PM on January 19, 2008 [7 favorites]

@Hello Dad, I'm in Jail -

That's an awesome service, and it's about time someone started offering that, and I bet you accountants and debt specialists follow suit in no time. In a few years we'll see a whole industry of lawyers and letter-writers form around getting crap off your credit record, and I bet you it'll be as commonplace as stock advisors and wedding planners in a few years.
posted by saysthis at 7:40 PM on January 19, 2008

I thought it might well be a scam before I started, but it is an actual law firm set up to pretty much automate this. My thinking in signing up with a law firm is that if they grossly misrepresented their services was that I could at least complain to the Utah Bar. Here's a link to them, and here's a link to the "Ripoff Report" where someone doesn't understand paralegals and "Power of Attorney."

At this point, I ought to cancel with them, since I don't think there's much negative left on my credit report and I am too lazy to get a new round of free reports at https://www.annualcreditreport.com/. I think that's the legitimate site that the federal government required the three bureaus to set up, but it's hard to tell these days.

If Lexington Law doesn't cancel gracefully, I'll come back and let you all know.
posted by Hello Dad, I'm in Jail at 8:59 PM on January 19, 2008 [4 favorites]

indeed, annualcreditreport.com is the FTC-endorsed site to get the free reports.

posted by Ziggy Zaga at 10:41 AM on January 20, 2008 [1 favorite]

Just to confirm Hello Dad's comment, https://www.annualcreditreport.com is indeed the government mandated, official website set up by the three credit reporting agencies to provide you free annual credit reports.

There are many other sites that try to confuse consumers into pulling their "free credit report" from them, when in fact they are trying to get you to subscribe to a credit report monitoring service.
posted by darkstar at 10:44 AM on January 20, 2008 [1 favorite]

posted by darkstar at 10:46 AM on January 20, 2008

I would be very interested to know which banks are dong this. (If they really are; sounds pretty sketchy to me.) Lenders lend money based on people's credit scores; I don't know how it could be worth it to them to fuck with the system and risk legal blowback for TradeLine's $700.

I'm not a lawyer or banker, so I'm basically making stuff up, but I have two theories: (1) liability for information on a credit report is low, and (2) consumer credit ratings leave a lot to be desired when it comes to picking out good lending risks (and some portion of those working in lending probably even know this) but they get used anyway.

#1 seems pretty likely. If legal liability for was high for incorrect or misleading information on credit reports, the credit reporting agencies and people sending them information would already be screwed by now -- my guess is the credit reporting agencies have probably gone to considerable lengths to shield themselves from liability by agreement and possibly by shaping the law. And of course, no one holds a gun to a lender's head and forces them to base their lending decisions off of credit reports.

#2 is speculation, but anybody who has watched "best practices" for an industry coalesce from smart thinking and good principles to a set of rules executed without understanding can pretty quickly grasp how this could happen. And we're talking about something that's a fairly fuzzy assessment in the first place -- it's a lot like sifting through a pile of resumés, there may be certain criteria by which you can frequently rule people out, and a few specific positive indicators, but there's no way to really create a precise metric by which you can tell how likely a given employee is to be satisfactory. But this is more or less what a credit score is understood to be, and so, like certain resumé selection techniques and HR common wisdom (some of which is probably semi-effective, some of which is demonstrably useless), people follow the practice, because it's nice to have something on which to base a decision, and common wisdom is at least plausible.

I think it's also worth considering that some of the social entrepreneurship may be showing holes in a traditional lending model. Take Bonnie CLAC -- in this NPR interview founder Robert Chambers claims its "success rate is better than commercial lending. On a portfolio of $10 million with 985 clients, we've lost $46,000." If they're doing this well in an arena where their target market is overwhelmingly low-income, low-asset, quite probably poor credit, it doesn't say much for certain traditional indicators.

And none of this really considers the predatory element that exists in the business. As I said earlier, some people in the business have probably realized the problems with credit reporting. Some service-motivated lenders probably honestly try hard to get around this problem, but I suspect a larger number of them either simply try to protect themselves in other ways besides relying on the creditworthiness or outright try to use the scoring flaws as a way to justify rates they know they don't need. Or both. In any case, there's almost no incentive to fix systemic problems -- if you do find a way to more effectively and precisely sift good risks from bad ones, it's a competitive advantage if you keep it to yourself.

Now there is some incentive for a credit reporting agency to start to do better. The question is if their margins are small enough or their market is competitive enough for them to care. My observation is that lenders tend to pull reports from multiple agencies, which implies to me that they're not really competing with one another as such, and I really suspect their overhead isn't that high. So for the moment, I don't expect a lot of market-driven change from them.

I do hope that there will be more social entrepreneurship here, and some entry into the field by less entrenched players who might be interested in trying new things. But I think it's going to be a long while before the credit score is anything less than a game. There really isn't enough incentive in the system to try to make it that way.
posted by weston at 11:49 AM on January 20, 2008

Just because a CDFI (community development finance institution - your example is of an org that does car loans, which is a less common manifestation; but there are many that do mortgage lending and small business lending - see the Opportunity Finance Lending Network and the Treasury's CDFI Fund) has a low default rate doesn't mean they've figured out a way to underwrite more efficiently. These orgs tend to do relationship lending - since they have a social goal they work much more intensely with each individual borrower to make sure the loan will work for them & then if there's a problem they are way more flexible with the workout. Default rates are low but 90 day delinquencies not necessarily so much. The whole thing is pretty expensive - maybe not from the point of view of a nonprofit since much of it does pay for itself but definitely from the point of view of a for profit. Hence the difficulty these orgs have in raising capital.

Back to the topic, I agree with those above that say that the fact that this scheme could possibly work even on the short term certainly points up the absurdity of the current credit scoring system.
posted by yarrow at 3:28 PM on January 20, 2008

Terribly sorry to post again about NYT's registration policy, but I figured out why Safari Private Mode can see New York Times articles w/o login while Firefox can't. If you already have a nytimes.com cookie when you navigate to an article page, you are prompted to log in. Otherwise you are not prompted to login. So here's the two step process to avoid the login prompt when visiting the occasional NYT articles linked from MeFi:

1. Set your browser to only accept cookies from "nytimes.com" for the duration of the session
2. Clear cookies from "nytimes.com"

(I also cleared cookies from "revsci.net", but I don't know whether that made a difference.) You'll want to close the browser tab or window after reading each article. And remember: it's not technically possible for your web content to be behind a registration wall and indexable by search engines. You have to choose one or the other, and the New York Times has decided which is more valuable to them.
posted by sdodd at 12:29 PM on January 21, 2008

Wouldn't it be more fun to pay 1300 bucks to have your enemy's credit linked with a loan that is about to Default?

Imagine...for a few bucks you could force your Boss to drive the same year old Beamer instead of leasing a new one every year.

We should start a fund to destroy the credit of the rich. Sorry sir, no caviar for you!! Hookers and Cocaine aren't free you know!
posted by Megafly at 12:58 PM on January 21, 2008

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