Seasoned trade line
Encyclopedia
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 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, or do not themselves have access to the account number. It is possible a recipient might learn the account number in some other
way, for example if it appears on his own credit report. However, this is often insufficient information to make use of the account - a PIN
, expiration date, or security code
is typically also required. These measures further lower the risk to the "donor".
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.
With FICO 08 on the horizon many brokers who used to add “authorized users” to existing credit card accounts have switched to brokering “Seasoned Primary" accounts. A “primary” account is an account in the borrower's own name. This practice is not yet tested in the courts as the lender now has no way of telling your real credit from that of the former owner who had “seasoned the account”. With an authorized user account the credit report clearly marks the account as authorized user, this new practice however the lender is not alerted to the true status of the account history. One case has been filed in Federal Court; Case 3:2008cv00694, John Brosnan Vs. TradeLine Solutions, Inc. TradeLineSolutions.com, Ted Stearns, April Richards and others.
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 practice involving
seasoned trade lines, sometimes called piggybacking, uses
a creditworthy borrower's accounts to improve the credit rating
Credit rating
A credit rating evaluates the credit worthiness of an issuer of specific types of debt, specifically, debt issued by a business enterprise such as a corporation or a government. It is an evaluation made by a credit rating agency of the debt issuers likelihood of default. Credit ratings are...
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
Credit score
A credit score is a numerical expression based on a statistical analysis of a person's credit files, to represent the creditworthiness of that person...
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
Risk-based pricing
Risk-based pricing is a methodology adopted by many lenders in the mortgage and financial services industries. It has been in use for many years as lenders try to measure loan risk in terms of interest rates and other fees...
, then their
artificially inflated credit score may translate into a substantially
lower interest rate
Interest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
.
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, or do not themselves have access to the account number. It is possible a recipient might learn the account number in some other
way, for example if it appears on his own credit report. However, this is often insufficient information to make use of the account - a PIN
Personal identification number
A personal identification number is a secret numeric password shared between a user and a system that can be used to authenticate the user to the system. Typically, the user is required to provide a non-confidential user identifier or token and a confidential PIN to gain access to the system...
, expiration date, or security code
Card security code
The card security code , sometimes called Card Verification Data , Card Verification Value , Card Verification Value Code , Card Verification Code , Verification Code , or Card Code Verification are different terms for security features for credit or debit card...
is typically also required. These measures further lower the risk to the "donor".
Legality
FTC spokesman Frank Dorman said: "What I've gathered from attorneys here is that it is legal , however, the agency is not saying that it is legal technically." Other law enforcement agencies, like the Florida Attorney General's Office, are reviewing whether such activities are legal.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.
With FICO 08 on the horizon many brokers who used to add “authorized users” to existing credit card accounts have switched to brokering “Seasoned Primary" accounts. A “primary” account is an account in the borrower's own name. This practice is not yet tested in the courts as the lender now has no way of telling your real credit from that of the former owner who had “seasoned the account”. With an authorized user account the credit report clearly marks the account as authorized user, this new practice however the lender is not alerted to the true status of the account history. One case has been filed in Federal Court; Case 3:2008cv00694, John Brosnan Vs. TradeLine Solutions, Inc. TradeLineSolutions.com, Ted Stearns, April Richards and others.
External links
- 'Piggybacking' roils credit industry
- Credit Where None is Due? Authorized User Account Status and "Piggybacking Credit" - The U.S. Federal Reserve BoardFederal Reserve SystemThe Federal Reserve System is the central banking system of the United States. It was created on December 23, 1913 with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907...