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System Curbs Use of Piggyback Credit

TransUnion develops customized systems for lenders

July 12, 2007

By MortgageDaily.com staff

One of the three major credit bureaus has found a way to help lenders sniff out piggyback credit abusers.

TransUnion announced today it has helped six of the top 10 mortgage lenders develop a customized system to identify prospective borrowers who have added authorized user accounts to artificially inflate their credit scores.

An analysis of almost 2 million approved mortgage applicants who were approved between July 2006 and Sept. 2006 determined about half of the group was impacted by the piggybacking, the Chicago-based credit repository said. The credit reports of these high-risk consumers exhibited a significant, recent change in the credit scores.

Based on the findings, "TransUnion developed a set of highly predictive credit characteristics," the announcement said. "By strategically deploying a combination of 'authorized user' and 'non-authorized user' credit characteristics, TransUnion offers a tailored solution that will notify financial institutions of potential artificial score inflation."

The system, tailored to the individual lender's specific credit criteria and risk threshold, provides immediate results by issuing a notice when artificially enhanced scores are identified, according to the press release.

"Once these questionable authorized user trade lines have been identified by the customer, TransUnion's Real Estate Division can initiate modifications to the TransUnion credit file that allows customers to obtain a re-scored TransUnion credit report absent the authorized user trades," according to the company -- which also noted it has the ability "monitor and trend market activity as it relates to this abusive practice."

In June, Fair Isaac Corp. announced it would modify the formula for its FICO credit score as a result of this new type of credit repair service that sells credit card histories to credit applicants -- boosting their score in the process. The change enabled the newest FICO model to ignore authorized user accounts.

TransUnion said its own risk models, including, VantageScore, "do not take into account authorized user trade lines when calculating a risk score."


Piggyback Credit Targeted
The developer of the FICO score has taken steps to ensure credit scores are not artificially enhanced using borrowed credit.

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