SAN DIEGO — Ted Stearns, the owner of Tradeline Solutions, a company that facilitates the addition of "authorized users" to strong credit lines as a means of helping consumers boost their credit scores for a fee, is quite open about what his company is seeking to do.
"I found out early on as a financial advisor that there is whole population of people out there who of no fault of their own have wound up with a lower credit score than their circumstances really deserve," Stearns said. "We help consumers get credit scores that more accurately reflect their real circumstances and that helps lenders make better credit decisions."
Stearns said he has been a financial planner for a number of years and had hosted a weekly radio show on financial matters. Speaking with consumers in the course of this work alerted him to the problem.
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He said he got the idea of turning the concept into a business from listening to the stories of consumers who were overall hard working and responsible, but who had seen their credit score sharply lowered because a cell provider had reported an overdue $20 phone bill. Not only is this sort of reporting unfair to the consumer, Stearns said, it is inaccurate as well and it leads to people who should qualify for better credit being tarred as poorer credit risks than they really are.
What Tradeline Solutions does is open relationships with individuals of different types, including some business or corporate cardholders who have very strong, seasoned, credit lines with cards issued from all the major card brands.
For a fee, the company adds the applicant to one or more of these credit lines as an "authorized user." The good credit performance of the seasoned credit line then begins to be reflected in the applicant's credit score when they apply for credit and the applicant is either granted a credit line for which they might not otherwise qualified or receives a better price for the credit they receive.
Stearns says that Tradeline carefully interviews its clients and seeks to help only consumers who have "reasonable" credit histories and not those who have simply ignored payments in the past or perhaps even acted fraudulently with their use of credit. Stearns said that one source of clients were mortgage brokers who often provided an additional level of screening for clients to increase accountability.
Indeed, while credit scores have an impact on card issuing Stearns suggested that most of the drive among consumers for Tradeline services has come from those seeking to improve mortgage applications and mortgage refinance applications and that this is where the interests of Tradeline and credit unions converge.
"In the current mortgage market I have the same interests as credit union executives have," Stearns said. "We both want consumers to be able to refinance an existing higher interest mortgage whose payments they aren't able to make into a lower interest mortgage with payments they can make. We both want the consumer to keep the house and to keep that property from foreclosure."
Outdated Practice?
Stearns added that Tradeline, which has only been incorporated since the spring of 2007, remains confident that its services will continue even though Fair Isaac has announced that it is rolling out a software change that will prevent "authorized user" data from being included in applicants' credit scores.
Fair Isaac has said the changes are intended to prevent credit repair companies from exploiting authorized user accounts.
One of the three credit bureaus–Experian, Equifax or TransUnion–will adopt the new scoring model in September, Fair Isaac has said. The company would not identify which one, but the remaining two credit bureaus will adopt the new scoring model by mid-2008, the company said. Stearns said the first company to implement the change will be Experian, but added that the implementation will be long and slow.
"Even if they put it into place on their systems, it will still not need to be implemented at all the issuers and there will always be issuers and cardholders who will want to help family members and others by adding them as authorized users," he said. "There is a myth running around that the practice has been ended," Stearns said, "but that is not true at all."
Curiously, when it comes to credit union card issuing, it may be that the practice of credit piggy backing might not have a great deal of impact, according to one experienced executive.
"Card issuers, including credit unions, look at a pretty wide variety of different scoring techniques and scoring as part of their card underwriting," explained Jay Kurian, first senior vice president for TNB Card Services, the card processing arm of credit union-owned Town North Bank. "The FICO score can have an impact on pricing and maybe how much credit an institution would want to offer, but it will not be the only thing that an issuer will consider."
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