Does Piggybacking Still Exist?
This is certainly a blast from the past. Piggybacking, the process whereby a consumer pays to be added to a stranger's credit card account as an authorized user, was all the rage in 2007. The theory, a sound theory at that, was that adding a credit card with a high credit limit, clean payment history, and a low balance to a credit report would improve your FICO credit scores. At one point the practice became so popular that FICO announced that in their new model (FICO 08), authorized user accounts would not count at all. After some complaints from lenders, FICO announced that they would take a more surgical approach and weed out the illicit authorized user accounts but still count the legitimate authorized user accounts.
Since then, the piggybacking industry has taken a beating. Many of the companies have gone out of business and some have been put out of business by the long arm of the law. And while piggybacking still exists to a very small extent, several other credit repair practices have taken its place.
The most prevalent seems to be the artificial credit card account strategy. This works in one of two ways. The first takes place when a consumer signs up for what is marketed as a credit card account for online retailers. The account is reported as a credit card to the credit bureaus and the credit limit is set based on how much the consumer chooses to pay the retailer. I've seen these go up to $10,000. There's not really a credit card issued but it's reported to the credit bureaus as if it was.
The second strategy is much more clever. This one involves the refurbishing of old debt into a new credit card or installment loan account. The process generally involves a debt buyer who has purchased the bad debts of credit card issuers or installment lenders for pennies on the dollar. These debts, once legitimate, are still reporting to the credit bureaus as charge offs. The debt buyer, who is really a credit repair company in hiding, sells access to these accounts to desperate consumers for a fee. Once sold, the debt buyer uses a 3rd party who has the ability to report information to the credit bureaus and re-reports the debt but as a "paid as agreed" account in good status.
I am certain that the credit bureaus are aware of the first practice, as I've asked them about it in the past. I'm skeptical about their knowledge of the second practice – until now, of course. Regardless, both are proof that credit repair is evolving and becoming more sophisticated. Piggybacking seems to have been replaced by more effective credit repair methods.
Since then, the piggybacking industry has taken a beating. Many of the companies have gone out of business and some have been put out of business by the long arm of the law. And while piggybacking still exists to a very small extent, several other credit repair practices have taken its place.
The most prevalent seems to be the artificial credit card account strategy. This works in one of two ways. The first takes place when a consumer signs up for what is marketed as a credit card account for online retailers. The account is reported as a credit card to the credit bureaus and the credit limit is set based on how much the consumer chooses to pay the retailer. I've seen these go up to $10,000. There's not really a credit card issued but it's reported to the credit bureaus as if it was.
The second strategy is much more clever. This one involves the refurbishing of old debt into a new credit card or installment loan account. The process generally involves a debt buyer who has purchased the bad debts of credit card issuers or installment lenders for pennies on the dollar. These debts, once legitimate, are still reporting to the credit bureaus as charge offs. The debt buyer, who is really a credit repair company in hiding, sells access to these accounts to desperate consumers for a fee. Once sold, the debt buyer uses a 3rd party who has the ability to report information to the credit bureaus and re-reports the debt but as a "paid as agreed" account in good status.
I am certain that the credit bureaus are aware of the first practice, as I've asked them about it in the past. I'm skeptical about their knowledge of the second practice – until now, of course. Regardless, both are proof that credit repair is evolving and becoming more sophisticated. Piggybacking seems to have been replaced by more effective credit repair methods.
John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.
Very interesting. I had heard about FICO 08 nixing piggybacking, but the second strategy you listed sounds very complex and a little alarming. It reminds me of the invention of CDOs - a way to package and profit from bad debt. It seems clever for now, but I wonder what will happen to those sly financial engineers when the jig is up...hopefully nothing as bad as the subprime fallout.
Posted by: Jack @ Master Your Card | September 02, 2009 at 06:42 AM
Thanks for the great information. It is amazing to me the lengths that credit repair companies will go to to try to beat the system. I had heard about the FICO 08 model and was glad to see some limitations placed on piggybacking. (While still allowing parents and spouses to help.)
Posted by: Wendy | September 02, 2009 at 02:32 PM