What’s Behind Those Offers to
Raise Credit Scores?
By JANET MORRISSEY
Published: January 19, 2008
A HOST of companies have cropped up in the last year
that offer struggling subprime mortgage holders
quick-fix programs aimed at raising their credit scores.
Ted Stearns is chief of TradeLine Solutions, which offers to raise a borrower’s
credit score for a fee.
Some of their methods include piggy-backing onto a stranger’s
credit card and receiving pay stubs from a fake employer. The
latest comes from a San Diego company, TradeLine Solutions,
which claims it can improve a borrower’s credit score by adding
.somebody else’s top-notch credit history to the borrower’s history.
But industry trade groups and consumer advocates warn borrowers
to be wary of that program as well as others that play off borrowers’
fears that they will lose their homes when mortgage rates reset to
.significantly higher levels.
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.
Ted Stearns, chief executive of TradeLine Solutions, said he came up
with what the company calls its “seasoned primary accounts” program
.using a “loophole” in the law. Adding a single account can raise a
credit score by 35 to 40 points, he said. But most clients purchase
three accounts, at $1,399 for the first one and slight discounts for
.subsequent ones, to increase a score from say 560 to 700, he said.
The program’s concept, he said, is similar to someone’s buying a car
and taking over somebody else’s car loan or lease account at the time
of purchase — except, in this case, there is no balance on the account.
The original borrower is unaware that a new name is being attached
to the account, he said. Mr. Stearns defended his program. “I am a
legal entity that conducts business throughout the state of California
and the entire continental U.S.”
But Craig Watts, consumer affairs manager at the credit analysis
firm Fair Isaac Corporation, said the program raised red flags.
“They’re falsifying the person’s credit history, and that’s one definition
of loan fraud,” Mr. Watts said. Even if TradeLine has found a legal
.loophole to offer the program, the people using the program are knowingly raising their credit scores artificially when applying for a
loan or refinancing, he said, adding, “If the borrower is deliberately
.misrepresenting himself and his credentials to the lender, that’s
Mr. Watts said that if law enforcement officials chose to prosecute,
.borrowers could potentially risk losing far more than just their
Fair Isaac developed the FICO scores, which are the most widely
used scores for assessing credit risk. It recently fine-tuned its
formula, Mr. Watts said, to shut down another credit-enhancing
He emphasized in an interview that his firm is not a law enforcement
.agency, but would bring concerns to the attention of the Justice
.Department, Federal Trade Commission, the F.B.I. and attorney
.general’s office if lenders started complaining about such practices.
.George Hanzimanolis, president of the National Association of
Mortgage Brokers, expressed similar concerns.
“You’re representing something to be true that is not,” he said.
.“Artificially increasing the scores to make them look like they’re
.creditworthy is a road to disaster.”
Mr. Hanzimanolis said companies that seemingly offer help to
individual borrowers might actually be making matters worse. He
said he was concerned that many of these loans might wind up
becoming delinquent later because they involve people with poor
credit. When this happens, he said, the whole industry could suffer.
“There’s no way anybody would be able to determine what customers’
.true credit profiles looked like,” he said. “Then we’ll have more homes
.going into foreclosure, which will end up driving home prices down
across the country and affecting banks, consumers — everybody.”
The F.T.C. and other federal agencies declined to comment on the
.programs or to say whether any investigations were under way.
“Investigations are nonpublic and we don’t opine over whether
something is legal or not,” said Frank Dorman, public affairs specialist
.with the F.T.C.
Fair Isaac has already taken steps to crack down on another credit
repair program that TradeLine and a number of other companies,
.including Instant CreditBuilders.com and SeasonedTradeLines.com,
.began offering in the last year.
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