Credit card piggybacking to improve your credit score could land you in jail!: Internet Scambusters #1,035
You most likely played piggyback when you were a kid. It's fun.
But maybe not when you pay to piggyback a stranger's credit card to inflate your credit score.
The cost might be more than the $4,000 you could pay to do it; it could lead to fines and jail time as we explain in this week's issue.
Let's get started…
Credit Piggybacking: What It Is And Why It's Dangerous
If you're desperate to build up your credit score - as many are during these tough financial times - you may have come across ads from companies offering to do just this for you, using a tactic known as piggybacking.
But if you use this approach, you could end up in worse money troubles or even breaking the law… if you get snared by one of the scam firms operating in this gray area of financial support.
In simple terms, credit piggybacking is the practice of becoming a named "authorized user" on someone else's credit cards, someone with a much higher score than yours.
It's fraught with pitfalls and the activities of scammers making false promises that they can increase your score by hundreds of points in just a few weeks - in return for a hefty "credit repair" fee, of course. Sometimes as high as $4,000!
Oftentimes, people find their names added to accounts of individuals they don't know. The primary card holder, in turn, is paid a fee for allowing their account to be used in this way. In effect, you're renting their good credit reputation.
A more conventional and less dubious route is for the individual to have their name added to the card of a relative. Credit card companies are required to state if an authorized user is a spouse but, otherwise, they don't have to describe the relationship.
Either way, over time, the newly authorized user may see their credit score increase, perhaps significantly, coupled with a healthy payment record. Score gains of 50 points or so are not uncommon.
But if this inflated number is then used to apply for a loan, a mortgage for example, or some other purpose, he or she may find themselves accused of deception or even fraud. Fines (up to $1 million!) or even jail time (up to 30 years!) could follow.
Furthermore, the "rental" period provided by repairers is usually fixed. When the term expires, the authorization is removed, which could result in a big drop in the score.
Terry Clemans, Executive Director of the National Credit Reporting Association, says "It's gaming the system. The downside is someone who gets into a mortgage they can't afford to keep."
From the opposite view, if you're the cardholder, you will be responsible for any payments charged to your card by the other user. That could result in a lowering of your own score.
Experian, one of the "big three" credit bureaus, describes credit piggybacking as a "questionable and deceptive practice." Understandably, they say, lenders don't look favorably on its use.
Using a credit repair company also involves disclosing personal, confidential information that could end up in the wrong hands.
"To become an authorized user, you must provide the company with your name, address, birth date and Social Security number. This puts you at risk of fraud and identity theft," says Experian.
The truth, according to the US Federal Trade Commission (FTC), is that anything a credit repair company can do to improve your score and that stays within the law, you can actually do yourself for little or no cost or with the help of a non-profit credit counseling organization.
Experian suggests more positive and less dubious ways of increasing your credit score:
- Apply for a "secured" credit card for which you have to provide funds, which is held as collateral.
- Take out a "credit builder loan." This is a sum placed in a savings account, which is generally not touched, with the borrower making monthly payments that are reported to the credit agencies.
- Use utility bills you've paid to increase your score. The bureau has a free tool for this.
Longer term, to maintain and grow your score:
- Pay bills on time.
- Keep card usage to below 30% of your credit limit.
- Have a number of different credit lines - cards, personal and auto loans…
- … but limit the number of applications that are made within a short period.
- Keep all your accounts in good order.
If you must piggyback, go down the relative's route. Remember, credit repair companies are only able to do what you can do yourself. Then, monitor your credit score regularly to spot discrepancies or things moving in the wrong direction.
This Week's Scam Alerts
Storm damage: A reminder that devastating hurricane storm and flood damage is a common platform for scams. Check out contractors for planned repairs, only contribute to reputable charities, and ensure you check for telltale signs of flood damage in cars you're interested in buying. See our earlier guidance here: Scammers Dump Flooded Cars on Unsuspecting Buyers and Tornado Warning: How to Spot and Stop Disaster Scams.
Passport warning: Among recent data breaches, American Airlines has disclosed that a recent hack via employee emails has exposed a "small number" of customers' personal information, including passport and driver's license details. The firm is offering two years' free identity theft monitoring.
Instagram verification: Users of social media app Instagram are being targeted with a phishing email saying they've been approved for the site's blue badge verification program. Victims are supposed to click a link to complete the process by filling out a form. This requires all sorts of information including sign-on details. Instagram does not send out unsolicited messages like this, so don't click!
That's it for today -- we hope you enjoy your week!