Exploiting a Credit Scoring Loophole for Profit

With so much at stake in credit scoring these days, it’s not surprising that people are looking to game the system for profit. This article describes a new practice to boost your credit score that is being promoted by many Internet-based companies. The technique is quite simple, and I imagine it’s quite effective, though its ethics are questionable at best. Basically, it entails people with good credit histories renting out a piece of their credit profile, by adding authorized users to established accounts for a fee:

Some Web-site promoters say they can add 80 to 120 authorized users onto a high-quality credit-card account before banks or lenders get suspicious. Each account can rent for as much as $1,500 to $2,000 for a 180-day usage. The primary credit-card holder receives a cut of the rental fee, often hundreds of dollars for each authorized user added to the account.

The person seeking a higher credit score does not obtain actual access to the credit card. But within 30 to 90 days of being added to the account, the national credit bureaus incorporate the primary cardholder’s ongoing account information into the files of the authorized user. The score-raising attributes of the primary cardholder’s stellar payment record then flow through to the new user.

Why does this work? When someone adds you as an authorized user on their credit card account, the credit card company has the option of including the account’s information in your credit report. Some companies will exercise this option; others may not. Should the credit card company include the account in your report, for credit scoring purposes, it’s as if you were the owner of that account since its inception. As a consequence, when you are added as an authorized user of a very old account with a high credit limit and an excellent payment history, that rubs off on you in a very positive way. It helps for at least a couple of reasons: 1) the older the accounts you have open, the better, and 2) it should decrease your overall credit utilization.

Normally, you wouldn’t add someone as an authorized user unless they’re a relative or someone you really trusted. But there are apparently no restrictions on either the relationship or the number of authorized users that can be added to an account. This lends itself to abuse as described above.

To be honest, I don’t know the reason why authorized users are treated like this in the credit scoring’s system in the first place, but you would think that there would be easy remedies. For instance, why treat authorized users the same as a primary account holder? And shouldn’t it be easy enough to flag the cases where there are an excessive number of authorized users on a single line of credit?