Do you have good credit — and want to earn a little cash on the side? Why not rent your credit history to iffy borrowers, for a fee?
That's what some Americans have been doing, for a good profit. A cottage industry of credit-for-rent companies has sprung up to pair would-be borrowers with people who have good credit to spare.
Federal regulators are investigating the practice, but they haven't banned it. And the private market is showing signs that it may correct itself. In the meantime, both the credit-borrowers and the credit-lenders are profiting.
Brian Kinney spent 20 years in the Army. Now, he sells insurance in California. But he has another source of income: He rents out his good credit history on two old Citibank credit cards. He says he makes about $2,500 a month on the transactions.
He brokers his credit history to people with bad credit through Instant Credit Builders. People pay hundreds of dollars or more to piggyback on his good record, and each time they do, he gets $100 to $150.
This is how it works: Kinney lists the people with bad credit as "authorized users" on those two Citibank cards. When they become authorized users, Kinney's good credit record becomes a part of their own credit score – so they might get a loan they otherwise wouldn't qualify for, or a lower interest rate.
Kinney gets the names and social security numbers of would-be borrowers from Instant Credit Builders and then calls Citibank to change the names of the authorized users on each card.
"If they have my 1985 card, what shows up on their credit report is XXXX and maybe the last four digits of the credit card, so it's partial information — not enough that they can go out and do some shopping," Kinney says.
Why would Citibank allow Kinney to cycle authorized users on and off his cards? Citibank officials declined to be recorded for this story, but they sent a written statement indicating that Citibank "doesn't condone this type of customer activity" and is "engaged with multiple partners to discuss specific remedies."
But is it fraud?
"It's not fraud — it's a loophole in the system," says Craig Focardi, a credit scoring expert with Tower Group.
He says "authorized users" on a credit account used to be mostly family members. But in the past year or so, companies like Instant Credit Builders have popped up. The companies figured out that those authorized user slots are valuable to people with bad credit.
Instant Credit Builders declined to be recorded for this story. Brian Loving, an employee there, said the business is legal, and the company is just trying to help borrowers who need a break.
But Ginny Ferguson with the National Association of Mortgage Brokers calls "credit for rent" outright fraud — even if no one else says so. Ferguson's group has a vested interest in the issue: After all, mortgage brokers sign contracts with lenders.
"If we are found to have helped the consumer to commit fraud, we have to buy that loan back," Ferguson says. "So we're not in this just to shuffle a bunch of bad paper off to the people we are the front-line originators for."
Lately, the credit world has been clamoring for change.
In September, Fair Isaac, the company that created the FICO credit rating score, will stop considering authorized user accounts as a factor in its credit scoring.
Officials from Fair Isaac say they hope that the change will curb credit-for-rent transactions.
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