Don't Buy Credit

People with low credit score buy credit to improve their credit score before applying for loans. Some people establish their good credit score the long way. They start with one credit card and low credit limit, use it once in a while and make the minimum payments on time. Others prefer to establish their credit the fast and easy way. They either ask their relatives or friends to include their names on some of their existing accounts or buy credit from people with good to excellent credit history and credit score through credit boosters or credit brokers.

There are many brokers which help consumers improve their credit score by bringing together people with good credit and those willing to pay to boost their credit score. Once they are matched, the credit seller places the buyer’s name on its credit card as an authorized user. This practice is nothing new and for a long time, family members and close friends have done so to jump start the credit scores of their loved ones. Parents have been doing this for their kids for the longest time since credit scoring was developed.

The cost to buy credit and improve one’s credit score depends largely on the number of credit card accounts the buyer wants to be placed on and credit score points they want to improve. For example, to obtain a mortgage at a certain interest rate, the banks may require a credit score within a certain range. Depending on which range the credit score resides, the bank decides whether to approve a mortgage application and determines the interest rate based on credit risk. Therefore, once a borrower determines his or her credit score and bank’s credit score requirements for the desired mortgage program, the borrower is able to approach a credit broker and negotiate the cost to buy credit for the additional shortfall in the credit score. Preferably, the borrower does his or her credit score analysis before applying for the mortgage and being rejected.

This whole concept to buy credit is a very dangerous one for every one and I’m glad the scoring systems are changing to address this loophole. First, lenders are big losers because they make credit decision based on inaccurate data, which ultimately leads to higher payment defaults and loss of money for lenders. This type of credit piggybacking has resulted in greater default risks by borrowers who have built their credit score by buying someone else’s good credit. This is a big problem for companies that rely on credit scores to make credit granting decisions. Although some lenders use their own scoring systems, most lenders still use the Fair Isaac Corporation’s FICO score, and the company is planning to make changes to its credit scoring system to resolve this issue.

Second, the sellers of good credit scores place themselves at risk by sharing their good name and account standing with strangers. It amazes me to think that people who have worked so hard and for so long to establish their good credit history and credit score would risk it all for extra cash. Once a person is listed as an authorized user of an account, there is no limit to what damage that person can inflict on the established account.

And lastly, the buyers are forced to share their personal information such as a social security number with the sellers to place their names on their account. Once personal information is shared with others, there is an increased risk of abuse of the information to commit identity theft and identity fraud.

In conclusion, a credit score is a measure of a person’s ability to pay the debt back and when it’s manipulated in such manner, every one loses except maybe the credit score broker.

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