Credit Boosting Websites May Be Running Out of Time

With the recent tightening of regulations for bad credit mortgages, a "less than transparent" industry has thrived. It's the credit boosting industry and the salad days for this dubious business model may be numbered.


Credit boosting works like this: Folks with low FICO (credit) scores, such as a number in the low 500s, have a hard time qualifying for a mortgage with today's guidelines. However, federal regulations allow for people with good credit to have authorized users on credit cards and other loans. So credit boosting companies will search for people with very high credit scores that are willing to sign up authorized users with bad credit to their credit histories.

The person with bad credit is instantly linked to the history of the person with good credit, although they have no access to the actual credit cards or loans. This can almost instantly inflate a credit score 200 points or more. Suddenly a person with a score of 540 has a score of 780 and voila, they can qualify for the best mortgages at the best rates. This is very bad for mortgage companies and banks because it results in what amounts to fraudulent loans being written.

For as much as this hurts lenders, investors and the economy overall, this really hurts borrowers as well. If a borrower uses a credit boosting service to get a mortgage that they really can’t afford, there's a good chance they’ll default and end up in a foreclosure and ruin their credit. Even if they think they can afford the mortgage and are using this to game the system for a better rate, they need to know that the industry is working to shut down this process quickly.

In an effort to stop the practice of credit boosting, Fair Isaac, the company that manages FICO scores, has implemented changes to its FICO scoring policy to discourage and discount such practices. Fair Isaac has issued the following statement on its website, www.fairisaac.com:

"We will do whatever it takes to protect the reliability and accuracy of FICO credit scores for lenders, and to ensure lenders can continue to use FICO scores with confidence when making their most important customer decisions," said Dr. Mark Greene, CEO of Fair Isaac. "We will continue working with lenders, regulators and others in the credit reporting industry to end deceptive practices that fraudulently misrepresent consumer credit histories for profit."

The changes will go into effect starting September 2007. The bottom line is that if credit boosting continues, the whole FICO system is at risk of being replaced with a new system that will sniff out credit boosters. Either way, the end is near for this practice. This will help keep our economy healthy, and will keep borrowers with less than perfect credit from going down a slippery slope to ruined credit.