WESTON, Fla. (Associated Press) June 10, 2007 — Only a low credit score stood between Alipio Estruch and a mortgage to buy a $449,000 Spanish-style house in Weston, Fla., a few miles west of Fort Lauderdale.

Instead of spending several years repairing his credit rating, which he said was marred by two forgotten cellphone 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.

Instantcreditbuilders.com, or ICB, helped Estruch boost his score by arranging for him to be added as an authorized user on several credit cards of people with stellar credit who were paid to allow this coattailing. Parents also use this practice when they add their children to their credit cards to help them build solid credit.

The result was a happy ending for Estruch, but the growing practice is sending shivers through the mortgage industry. Federal regulators are also becoming increasingly concerned.

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.

Benefits for renters

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 personal information.

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 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.

Estruch paid $1,800 in December for three credit-card spots, and by January, his FICO score jumped from 550 to 715. In mid-March, he closed on his four-bedroom beige stucco house after obtaining a 30-year fixed-rate mortgage from a unit of American Home Mortgage Investment Corp. It carried a 7.5 percent interest rate and required no down payment.

How it works

Companies like Largo, Fla.-based ICB are sprouting on the Internet with little overhead and no-frills marketing. They post ads on community Web sites like Craigslist and have sponsored links on Google and Yahoo. Competitors of ICB have even reached out to mortgage brokers, lenders and real estate agents, flooding their e-mail with advertisements.

Jason LaBossiere, who founded ICB a year and a half ago, said his company receives 100 to 150 new leads daily, a number that has been growing, and those inquiries lead to 10 to 20 new clients a week.

ICB charges $900 for the first credit-card account, with a discount for additional ones. The cardholder allowing the piggybacking on his or her credit history can receive $100 to $150 per slot, depending on the age and credit limit of each card. ICB pockets the rest.

The effect on a credit score can vary depending on what else is in a client's report. But one borrowed credit-card account can increase a score between 30 and 45 points, two between 60 and 90 points, and five between 150 and 205 points, according to ICB. That's because the computer program that calculates scores is essentially tricked into believing the credit renter has a better repayment history when it sees the added accounts and that helps lift the credit score.

Once the credit-card company files an updated report to credit bureaus, leading to a higher FICO score, the credit renter is removed from the account of the person allowing the piggybacking.

Fraud concerns

Kinney, the retired Army officer in California, said those borrowing his good credit history don't get his personal information, full credit-card number or credit-card expiration dates. Any sensitive data is handled through ICB, and Kinney adds the users himself by calling his credit-card company. ICB also destroys any duplicate cards that are issued to the credit renter, according to its contract.

In fact, Kinney fears that those seeking a credit hike are most at risk to be swindled. They give the cardholder their names and Social Security numbers, which, in the wrong hands, could lead to identity theft. Kinney said he also receives credit-card offers in the mail for the credit borrowers on his accounts.

Ginny Ferguson, a mortgage broker in Pleasanton, Calif., and a credit expert for the National Association of Mortgage Brokers, considers the practice mortgage fraud, and the trade organization is about to release a policy statement against it.

"These companies are encouraging consumers to commit fraud," Ferguson said.

ICB's LaBossiere said he sees his business as a second chance for the consumer who has had little financial education to make good decisions. "People who are our clients are spending an incredible amount of money to get their finances back in order," he said.

So far, federal authorities have yet to make a ruling on the issue.

And lenders, who depend on credit scores to assess a person's ability to pay back a loan, are closely watching the practice's growth.