SAN DIEGO – New software has been developed to assist financials in identifying whether applicants got improper credit score boosts by being listed as authorized users on other people's credit accounts.
The information is considered increasingly valuable – and increasingly difficult to obtain – in the evaluation of mortgage applications. The new tool has been released by Cogent Road, LLC and seeks to measure the probability that a loan prospect's credit score has been manipulated through an authorized-user arrangement. “In early deployments, it has found that two of every 100 borrowers have had their credit scores inflated by 10% or more in this way,” the company reported.
"It's a ticking time bomb because it means 2% of a bank's files are potentially at risk for default," said William DiPaolo, Cogent Road's managing partner.
Improper use of authorized-user arrangements emerged as a significant problem during the mortgage crisis, typically among people who wanted to improve their credit scores or get better terms. A cottage industry of so-called credit repair services sprang up, charging people with poor credit to be listed as authorized users of a stranger's account. The account holder gets a cut of the fee. The authorized user gets a credit score boost but does not get card access to the account.
Earlier this month, Fair Isaac Corp. said it would change the newest version of its FICO score to consider authorized-user accounts. The company last year had said it would pull authorized users out of FICO 08, the upcoming version its credit score mechanism, which will be available by year end.
