Why Piggybackers Are Violating the Credit Repair Organizations Act
Last week, I wrote about how the process of piggybacking is dying a slow and painful death. This week, I'm going to explain to everyone out there why the companies who facilitate piggybacking are not only credit repair organizations but are also violating the Credit Repair Organizations Act (CROA).
First off, what is a credit repair organization (CRO)? According to Federal law, a CRO is any for-profit company or person who sells any service, in exchange for money or other valuable consideration, that purports to improve a consumer’s credit reports or credit scores. So if I sit down with you and review your credit reports and for $50 I give you a plan to improve your credit, I would be considered a credit repair organization. It’s that simple.
Piggybackers fall into this category. They are selling a service being billed as one that helps you improve your credit scores. They are charging for the service, which makes them a CRO under the federal definition.
The goal is to add a credit card with a high credit limit and little or no balance to a credit report. This, in turn, reduces the credit card utilization percentage in consumers’ credit scores and increases their scores… or so they think.
What many people know, including the piggybackers, is that there is logic in the FICO scoring system that excludes certain credit cards from the utilization calculation. And while the exact logic is not overtly public, FICO doesn’t deny its existence. The bottom line is that not ALL of the credit cards that are being added to consumer’s credit reports are increasing FICO scores because the FICO scoring model is bypassing some of them. NOTE: THIS HAS NOTHING TO DO WITH FICO 08. THIS LOGIC HAS ALWAYS BEEN A PART OF THE FICO SCORE.
So What Provisions of CROA Are Piggybackers Violating?
Because of the fact that not all credit cards being added are working to improve your FICO scores many – possibly all – piggybackers are guilty of CROA violations. As I see it, they are the following…
Sec 404 (a)(1) – No person may make any statement… that is untrue or misleading or should be known by the credit repair organization to be untrue with respect to any consumer’s credit worthiness.
By stating that by adding a “tradeline” to a credit report you will improve your scores, when clearly that’s not always the case, I believe they are making a knowingly untrue and misleading statement.
Sec 404(b) – Payment in Advance. No credit repair organization may charge or receive any money or other valuable consideration for the performance of any service, which the credit repair organization has agreed to perform for any consumer before such service is fully performed.
Given that some of the tradelines being added will never improve your scores, the credit repair organization would have violated the “payment in advance” provision of CROA. Any payment taken by the company would have been in advance of the service being fully performed since it is never performed, even partially.
First off, what is a credit repair organization (CRO)? According to Federal law, a CRO is any for-profit company or person who sells any service, in exchange for money or other valuable consideration, that purports to improve a consumer’s credit reports or credit scores. So if I sit down with you and review your credit reports and for $50 I give you a plan to improve your credit, I would be considered a credit repair organization. It’s that simple.
Piggybackers fall into this category. They are selling a service being billed as one that helps you improve your credit scores. They are charging for the service, which makes them a CRO under the federal definition.
The goal is to add a credit card with a high credit limit and little or no balance to a credit report. This, in turn, reduces the credit card utilization percentage in consumers’ credit scores and increases their scores… or so they think.
What many people know, including the piggybackers, is that there is logic in the FICO scoring system that excludes certain credit cards from the utilization calculation. And while the exact logic is not overtly public, FICO doesn’t deny its existence. The bottom line is that not ALL of the credit cards that are being added to consumer’s credit reports are increasing FICO scores because the FICO scoring model is bypassing some of them. NOTE: THIS HAS NOTHING TO DO WITH FICO 08. THIS LOGIC HAS ALWAYS BEEN A PART OF THE FICO SCORE.
So What Provisions of CROA Are Piggybackers Violating?
Because of the fact that not all credit cards being added are working to improve your FICO scores many – possibly all – piggybackers are guilty of CROA violations. As I see it, they are the following…
Sec 404 (a)(1) – No person may make any statement… that is untrue or misleading or should be known by the credit repair organization to be untrue with respect to any consumer’s credit worthiness.
By stating that by adding a “tradeline” to a credit report you will improve your scores, when clearly that’s not always the case, I believe they are making a knowingly untrue and misleading statement.
Sec 404(b) – Payment in Advance. No credit repair organization may charge or receive any money or other valuable consideration for the performance of any service, which the credit repair organization has agreed to perform for any consumer before such service is fully performed.
Given that some of the tradelines being added will never improve your scores, the credit repair organization would have violated the “payment in advance” provision of CROA. Any payment taken by the company would have been in advance of the service being fully performed since it is never performed, even partially.
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.
Comments