A seasoned trade line is a line of credit that the borrower has held open in good standing for a long period of time, typically at least 2 years. A controversial practice involving seasoned trade lines, sometimes called piggybacking, uses a creditworthy borrower's accounts to improve the credit rating of an unrelated third party. The creditworthy borrower adds the third party as an authorized user of his lines of credit, but does not actually provide the third party with materials (credit cards, account numbers, etc.) that would permit the third party to make charges against that account. The benefit to the third party is an improvement in their personal credit rating—they now appear to have a long and favorable credit history, and their credit score increases. This makes the third party look like a better credit risk, and improves the third party's access to new credit. If the third party is dealing with a lender who uses risk-based pricing, then their artificially inflated credit score may translate into a substantially lower interest rate. The third party pays money in exchange for this service, typically between $500 and $2000, depending on the age and quality of the trade lines. The creditworthy borrower gets a portion of this, typically between $100 and $150, while the broker who sets up the deal keeps the rest. The risk to the "donor" is that the other person might actually make charges against the account, and not pay it back. The brokers who provide this service claim that they do not reveal the entire account number to the recipient. A recipient might learn the account number in some other way, for example if it appears on his own credit report.
Legality
FTC spokesman Frank Dorman said: "What I've gathered from attorneys here is that it appears to be legal technically, however, the agency is not saying that it is legal."[1] If a contract requires the borrower to disclose pertinent facts relating to his ability to pay back a loan, and the borrower does not do so, then this practice may constitute fraud.
Industry effects
Fair Isaac, the creator of the widely used FICO score, has announced that they will no longer consider accounts on which the borrower is an authorized user. These changes will take effect in September 2007.[2] This will stop the practice of piggybacking. It will also decrease the credit scores of borrowers who, like children or spouses, are legitimate authorized users of another person's credit lines. Because of the Fair Credit Reporting Act and privacy laws, there is no way for a lender to be able to tell who the other party of an authorized account is, and thus no way to distinguish legitimate use from fraud.
References
- Savage, Terry (2007-03-11). The Savage Truth: Seasoned Credit Lines. TheStreet.com. Retrieved on 2007-03-23.
- 'Piggybacking' roils credit industry
