Kurt wanted to buy a home for his wife and two children -- and he wanted to do it through a mortgage he could afford. But the 44-year-old Chicago man had spent time in prison on drug charges and hadn't been able to build up a credit history.
Kurt -- who asked that his last name be withheld to protect his family's privacy -- said he had turned his life around after prison. But, when it came to buying a home, his low credit score meant that he faced what he called "ungodly" high interest rates of 12 to 13 percent.
So, he sought out a controversial solution: Kurt found a company that helped him "piggyback" off a stranger's credit card by signing him on as an "authorized user" to the account. Having his name attached to a new line of credit, Kurt said, boosted his credit score. That boost, he said, allowed him to qualify for a home loan with an interest rate of just 6.9 percent.
"I was able to move forward from there to become a homeowner," he said.
The company that Kurt worked with, New York-based Tradeline Masters, says that it's helped tens of thousands of customers improve their credit scores. But as the mortgage meltdown continues, the "piggybacking" strategy employed by Tradeline and other companies has raised concern among law enforcement officials and the lending industry.
Some are taking action to stop the practice: The Florida State Attorney General's Office said it's launched civil investigations to determine whether two Florida-based credit repair companies were violating state law through their piggybacking services.
Meanwhile, Fair Isaac Corp., the credit analysis company that helps determine the scores for the nation's three major credit bureaus, said it's implementing measures to limit the impact that piggybacking has on consumer credit scores.
Piggybacking "is only a ruse to try to deceive the scoring systems and, by extension, lenders," said Craig Watts, a spokesman for the Fair Isaac.
Here's how it works: A consumer seeking to boost his or her credit score seeks the services of a credit repair agency. The agency, for a fee, acts as a matchmaker of sorts, seeking out a credit card holder who has good credit.
The card holder allows the poor-credit consumer to sign on to his or her credit card as an authorized user. In return, the card holder receives hundreds of dollars in compensation and is also assured that the poor-credit consumer will not actually use the card. The poor-credit consumer, meanwhile, sees his credit score increase by 10, 20, 30 points or more, potentially allowing him to qualify for more affordable loans.
Congress first allowed authorized users to build credit histories in the 1970s with the passage of the Equal Credit Opportunity Act. The law targeted women who were authorized users on their husband's credit cards, but didn't have cards of their own.
"It was aimed at helping women establish their own credit rating outside of their husbands," said Gerri Detwiler of Credit.com, a credit information Web site. "That was the law that essentially said creditors have to take into account that information that would show that a spouse has helped manage a credit account."
In the last five years, Detwiler said, credit repair agencies "figured out this was a loophole to help people with bad credit boost their credit scores quickly."