Posted 6/04/2007 05:27:00 PM by Douglas

What a great idea! Share your good credit, lose your house!

Instead of spending several years repairing his credit rating, which he said was marred by two forgotten cell phone bills and identity theft, the 37-year-old real estate agent paid $1,800 to an Internet-based company to bump up his score almost overnight.

The result was a happy ending for Estruch, but the growing practice is sending shivers through the mortgage industry. Federal regulators are also reviewing the practice. And after being contacted by The Associated Press for this story, Fair Isaac Corp., the developer of the widely used FICO score, said it will change its credit scoring system beginning later this year in a way it contends will end this little-known but potentially high-impact mortgage loan loophole.

I'm as lazy as the next guy when it comes to making money for doing nothing, but this sounds incredibly dangerous. I'm surprised it's as popular as it is, considering how prevalent and damaging identity theft has become. But still, hey, free money!

The pitch to those who are essentially renting their credit history for pay is seductive: You don't need to worry about users of this service receiving duplicate copies of your credit cards, account numbers or any of your personal information. It's essentially free money, they are told.

Brian Kinney, 44, a retired Army officer in Glendale, Calif., pulls in more than $2,500 a month by lending out 19 credit card spots on two old Citibank cards with strong payment histories. Kinney, whose FICO score is above 800 on the scale of 300 to 850, quit his job working at a Farmers Insurance agency and uses the ICB income to tide him over until he starts his own insurance agency.

Lenders are worried, however, that they're taking on greater default risks by unknowingly offering lower interest rates than they otherwise would to applicants who artificially boost their credit scores. Their trade group has complained to the Federal Trade Commission and is talking with the credit reporting bureaus in case the practice becomes more widespread.

Woo hoo! Free money! You know who is scared shitless over this? Lenders. Once again the internet is bringing together willing participants in the free market and cutting the huge, established industries out of business. Is buying someone else's good credit any more deceitful than paying your bills on time? Probably, but it's just as wrong to get screwed on interest rates for seven to 10 years because a few late payments follow you around forever. So cry me a river, banks, for losing at your own game.