Tighter Lending Standards Make Credit-Piggybacking Services More Popular

Ramblings

from the rent-a-score dept

Back in April, we wrote about services that offered to rent good credit ratings to people with poor ones, so they could get a mortgage or other loans. We were pretty skeptical that many people would be interested in actually renting or selling their credit scores to other people, but a new story in the New York Times claims that the services are partly to blame for the problems in the subprime mortgage market — problems which are weighing on the overall financial markets. In a reaction to an increasing number of mortgage defaults, lenders are tightening their policies and requiring more documentation from potential borrowers, in an effort to more thoroughly vet them and weed out people who won’t have the ability to pay back their loans. The NYT claims, however, that instead of cutting down on the amount of fraudulent applications, the higher standards actually appear to be leading even more applicants to these service. This issue — whereby a person can “piggyback” on another’s credit report and gain benefit from it — is just one that’s fueling financial institutions’ unhappiness with FICO scores, and the company behind the system, Fair Isaac, says it’s making changes to eliminate the positive influence of piggybacking. Even with those changes, though, it’s likely that lenders will continue to seek out additional services to judge the creditworthiness of borrowers.