Personal credit reports can either make or break a person as far as acquiring new credit cards, mortgages, installment loans, business loans, and home equity loans. If you have a good credit score and a stellar credit history, then you have nothing to worry about. You can sit back and relax. What do you do, however, if you don’t happen to have one of those excellent personal credit reports that so many people seem to have? Do you simply sit back and suffer while you watch everyone else around you get ahead in life? Do you scramble about for a few years trying your hardest to bump up your credit score, knowing full well that certain things are going to hold you down for several years?
Maybe you can buy a new credit score or at least rent one. After all, today, everything can be bought for a price. Consumers can purchase expensive sports cars, magical vacations in far away lands, cutting edge electronics, and more. No longer do consumers have to spend time repairing credit. They can simply rent a new credit history and have doors open for them right and left.
How does it work?
Consumers with poor credit can rent credit histories from individuals with good credit histories in order to improve their scores. They contact specific companies that rent stellar credit histories from consumers for a small fee. They collect a much larger fee from the actual consumers looking to increase their credit scores. The individual is added onto one or more credit accounts as an authorized user of the rented account. Although he never receives or is capable of using the credit card account numbers he is renting, he does benefit from the credit history attached to it.
Although a significant change in a credit score might require the renting of more than one account, all it takes is one borrowed credit history to raise an individual’s personal credit score. The practice is safe for the individual who is renting out his history. The other individual never has access to use the cards. Typically cards with strong on time payment histories are used. If an individual has a high FICO score, his credit cards are worth renting out.
In essence, individuals with artificially boosted credit scores are receiving the same perks and benefits as those who have earned the right to those higher credit scores. Therefore, the lending industry is concerned that some of the money that they are lending is going to individuals who pose a greater risk of defaulting on their loans.
The transformation occurs almost instantly as the consumer’s credit score changes from a less desirable one to a coveted and higher one. It allows consumers who would normally be denied loans or credit to acquire them as well as allowing consumers with less than stellar credit histories to receive offers that include more agreeable terms and interest rates, something that was once denied to them due to their poor standing in the world of credit.
What Do Consumers Do to Rent Credit?
The practice of renting authorized user status as a means to repair credit is offered through several web-based companies. They offer to rent consumers a credit card account with a good history. The offers include promises to raise scores by as few as 20 to as much as 200 points.
The companies offering to rent you a better credit history are advertising in greater numbers. A simple search online will turn up quite a few. The risk does exist that the consumer will not receive what he pays for, but that is a chance that many will take.
Why Bother Renting Credit?
Higher credit scores equate to lower interest rates on installment loans, mortgages, and credit cards. This in turn saves the individual thousands of dollars over the life of the loan. Additionally, for some consumers a higher credit score might even mean the difference between qualifying and not qualifying for a loan.
This might be all well and good for the individual who is looking to get a mortgage, new credit cards, or an auto loan, but what about the mortgage industry? What about the lenders? Who is watching their backs? After all, if a lender looks at a credit history report and sees only good things on it and an excellent rating, he has no idea that potential problems can occur. It gives lenders a false look at the likelihood that an individual will, in fact, repay their loan.
Is It Fair to the Lenders?
Not everyone who has a bad credit rating has one simply because of some minor infractions or a case of identity fraud or uncontrolled spending by a teenage child. Not everyone who borrows or rents a new credit identity is responsible and credit worthy. What about the individual who earned his bad credit reputation all on his own and truly deserves it?
Since most agencies rely on the FICO or credit score to help them make their decision, this practice is undermining confidence in its reliability to reflect people who are good credit risks. Be honest with yourself. If you had two friends asking for a small or even a large loan and you only had enough money to loan to one individual, whom would you give it to? Unless the friend who will most likely never pay you back is in a life or death situation, you will lend the money to the responsible individual.
While the companies offering this option might state that they are offering a way out for less than savvy consumers who have let their credit slide, they are in it to make money. Each credit history that is borrowed can cost an individual several hundreds dollars to rent.
What Happens to the Borrowed Credit History?
The companies that set up the rental remove the individual from the borrowed accounts once the information has been sent to the credit bureaus. Perhaps one of the best parts about this rental credit arrangement is the fact that the credit history remains on the individual’s record even after he is removed as an authorized user. In fact, currently, it remains there indefinitely.
The individuals renting or borrowing the credit histories never have access to the account numbers, expiration dates, or any other personal information about the owner.
Is It Legal?
The whole practice of renting credit histories seems like it can be a problem. Although it isn’t currently viewed as an illegal practice, it might be in the future. In particular, someone who is borrowing the credit history of another individual simply to bump up their credit score isn’t being honest with their information. This can be considered fraud.
Renting credit histories might be on its way out in the near future though as the developer of the FICO score, the Fair Isaac Corp, incorporates new changes that will help to detect this situation. Currently, the credit bureaus cannot tell whether an individual is related to the original holder of the account. That might change in the future as the new changes take place.
Manual underwriting of loans is an option for those lending agencies that wish to get around this practice. However, since it is costly and time consuming, it isn’t likely to occur. Federal regulators are also looking at this particular wrinkle in the lending industry.