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Offer: Lousy credit? Buy somebody else's

A San Diego firm says it can improve scores by adding the names of risky borrowers to loans that are already paid off.

December 08, 2007|Kathy M. Kristof | Times Staff Writer

The Bush administration came up with one fix for some sub-prime borrowers who are in trouble. A San Diego company offers another: Buy a better credit score.

With one or more of the "seasoned primary accounts" that TradeLine Solutions Inc. began selling this week, the company's website says, you can "dramatically increase your credit score" for as little as $1,199.

"A customer with a 550 credit score can come to us on Monday and walk into a bank by Friday with great credit to refinance or obtain a loan," Chief Executive Ted Stearns said in an interview, adding that buying good credit was a way for sub-prime borrowers to get out from under oppressive mortgages.

The company's website says the TradeLine's system is "100% legal." Stearns acknowledged that some observers might see it differently.

"Are there people out there who are going to say that it's mortgage fraud?" he said. "Sure, there could be."

TradeLine, Stearns says, has contracts with several banks -- he declines to identify them -- that have agreed to add TradeLine customers' names to the records of loans recently paid off by the banks' customers. These loans are known in the industry as dormant.

The banks are paid $500 to $700 per transaction, Stearns said. It is unclear if the person who took out the now-dormant loan receives any compensation.

The addition of a TradeLine customer's name to a dormant loan doesn't affect the original borrower, Stearns said, because the TradeLine customer is given his own loan account number while the original borrower keeps his.

That is common practice when assuming a live loan, banking experts say. Such loans are frequently taken over from original borrowers, such as when someone buys a car from a person who still owes money to a financing institution.

Banking experts said that taking over a loan that had been paid off -- a situation in which a person would get credit for the account's paid-in-full status even though he had nothing to do with settling the debt -- was unusual.

"I've never heard of this before," said Frank Newman III, president and chief operating officer of Wachovia Corp.'s Western banking group. "I can't imagine a lender going along. This is taking gamesmanship to a whole new level."

Law enforcement authorities said they were unfamiliar with TradeLine, which was incorporated in June, and couldn't comment on its products.

In general, they said, using bogus information to get a loan is a crime. It is bank fraud if the institution duped is federally insured, according to the FBI, or grand theft in other cases, according to the district attorney's office in San Diego.

Stearns said he saw nothing wrong with people trying to boost their credit scores and described the TradeLine seasoned account product as a "clever tactic" to help borrowers "beat the credit reporting system and avoid getting trapped in the sub-prime crisis."

"What's more of a fraud is that most of my clients are individuals who were sold sub-prime mortgages that they couldn't afford," Stearns said. "What do you say to that family of four when they bought their house three years ago and they stand to lose their house?"

TradeLine deals in another credit-boosting technique that is known as piggybacking, which adds a new "authorized" borrower to an existing account. This is a common transaction. A parent, for instance, might add a child who recently graduated from college to a long-standing line of credit, thus boosting the youngster's chances of qualifying for a credit card or car loan.

At TradeLine, customers become authorized users on strangers' credit card accounts. The company pays a cardholder $100 to $150 to add an authorized user, Stearns said.

Piggybacking has been criticized as leading to the issuance of failed loans. Fair Issac Co., which sells FICO credit scoring software, revised its formula for 2008 to eliminate the beneficial effect of being an authorized user.

Stearns said that was why TradeLine came up with its new product.

A TradeLine press release issued this week said the company would continue to search for "loopholes" to help people.

Stearns said it was "possible" that a TradeLine customer might run into legal trouble but added: "I would say that it is really hard to enforce the law."

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