In recent months, we have all heard about the sub prime mess. Foreclosures are increasing at an alarming rate, because of liberal lender guidelines. During the years of 2001 to 2005, anyone could get a mortgage. Not only could someone with less than perfect credit obtain a mortgage, lenders even offered loans up to 100 percent financing for one day out from bankruptcy or foreclosure. We have seen where that got us, a continuing disaster that will take a few years for us to recover from. Now that lenders seemingly have learned their “lesson” and tightened up their lending guidelines, shying away from “no doc” loans or not quite as eager to lend to someone with less then perfect credit, there is a growing trend of blatant fraud in the form of credit brokers.
Credit brokers have been showing up online at an alarming rate, and they have quite a large audience, in the form of struggling homeowners looking for a quick fix. Now, when a borrower’s credit score doesn’t allow them to qualify for a mortgage loan with the terms that suits their needs, they merely have to log online and apply to “rent or buy” someone else’s perfect credit history.
Basically the way it all works is that the Credit Brokers act as a liaison between a person with poor credit and one with perfect credit. The companies claim to raise someone’s FICO scores by anywhere between 50 and 250 points and accomplish this by adding the sub par borrowers as ” authorized users” onto the credit accounts of those with perfect credit. Ordinarily, after 90 days, the sub par borrower will see an increase in their FICO score and then they will be qualified to obtain a loan that they weren’t able to previously.
Although the credit line is added to the sub par borrower’s credit report, they are not able to access any credit from the credit cards that are added to their credit report.
Make no mistake; renting someone else’s good credit doesn’t come cheap. Some of the companies are charging up to $2,000.00 for use of one account for 180 days. The primary credit holder receives a share of the “rental fee” for their credit, however it appears that they are getting the short end of the deal, averaging anywhere from $200 – $600 per account that they rent out.
This can be interpreted as nothing less then fraud. Many lenders are wise to the scheme and often will not approve a loan when an individuals credit report indicates that they are an ” authorized user” It is important to note that adding authorized users to your current credit lines is not illegal, but the Credit Reporting Bureaus and the FTC is looking into it.
This type of service can only lead to nothing but trouble. Studies indicate that sub prime borrowers will often remain sub prime borrowers. Adding ” seasoned trade lines” to one’s credit will obviously increase the FICO score, but it benefits no one other then the borrower that cannot get the grasp of being able to handle their own finances.
To allow this practice to continue, spells additional disasters for the housing industry. It is well recognized that most of the foreclosures that we are seeing today resulted in loans being offered to these sub par borrowers, who had previous problem credit to give them a vehicle to falsely inflate their credit score will continue to damage the already struggling market, but will adversely affect those that are able to manage their finances by living within their means, making it more difficult to obtain a loan and the interest rates will with no doubt increase substantially. If a person cannot meet their financial obligations prior to ” renting or buying” seasoned perfect credit and obtaining additional credit, how in the world are they going to meet their financial obligations when they get themselves further in debt? This is a practice that must be done away with.
Sadly, mortgage brokers that have felt the need to suggest this option to their sub prime clients, once again, I will suggest that if a mortgage broker makes this suggestion to rent credit” walk away.