Can Credit Scores Be Manipulated?

Today’s economy runs on credit. Your credit score carries a lot of weight and impacts your ability to get a credit card or loan.

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Oftentimes, credit information is used as a litmus test to see if you're reliable or a risky bet. Still, some people take advantage of loopholes in the strict and formalized ways that lenders and private credit reporting agencies (CRAs) communicate with each other.

Before we dive into if credit scores can be manipulated, you need to have a basic understanding of the credit reporting system.

The Consumer Credit System in the US

Three CRAs—Experian, Equifax and Transunion—gather extensive data about your loan and payment history. Lenders use this information to assess your creditworthiness. CRAs maintain files on everyone who uses credit in the United States. Many businesses, such as financial institutions, need credit history information. 

These reports act as accountability mechanisms and provide the lender with an estimation of the loan applicant’s credibility. While there are legitimate credit repair services in the market, there is an abundance of unethical ones, too.

Abuse of Single Shared Database

There are two types of credit report inquiries—hard and soft. Someone requesting a person's credit file can view the hard inquiries. When a lender asks to look at your credit history to determine if you can qualify for a loan, this is a hard inquiry that can affect your credit history. 

Soft inquiries, on the other hand, are when an individual (or someone they authorize) checks their credit report; a soft inquiry might also happen if a credit card company or lender issues a preapproval. Keep in mind that every time a user asks for a copy of their credit report from one of the three CRAs, it generates a soft inquiry for that CRA.

After analyzing the transaction of information by CRAs, credit hackers found a loophole. Transunion and Equifax (two credit reporting agencies) use the same first-in-first-out database system to store both hard and soft inquiries. Even though the database can hold more than the number of inquiries that can be expected from legitimate businesses, it’s not capable of handling the volume of new soft inquiries from consumers submitted every day—so the database is cleaned once it’s filled up.

By constantly requesting soft inquiries from credit reporting bureaus, a significant number of credit manipulators are able to scrub negative information from their reports and improve their credit scores in order to get a judgment removed from their credit history.

Small Business Lines of Credit

In recent years, there has been an overabundance of competition in the credit market. Now, credit card companies regularly give business cards to small business owners and self-employed professionals. If a company files bankruptcy, the structure of the organization often protects the personal wealth of the CEO, but banks can still try to take the card owner's assets.

A lot of financial hackers found that transferring large debts to small business credit cards can positively influence their credit score. Even though they still owe the money, the balance was transferred, making it hard for lenders to find out that the borrower is in financial trouble.

Because lenders make decisions based on the amount of debt carried by the consumer, individuals benefit enormously by keeping the debt in the dark–and it ends up boosting the credit score of consumers.

Piggybacking

Piggybacking is the practice of becoming an authorized user on another person's credit account to build credit. People with bad or no credit histories use piggybacking to get loans they wouldn't be able to get otherwise. Let's take a closer look at how piggybacking works, which will partially answer the age-old question: does closing a credit account hurt your credit score?

First, you need to convince a relative or a person who has used a credit card properly for a long time to add you as an authorized user. You might feel like you're co-signing a loan, but it’s not necessarily the same thing. Once you're an authorized user of a credit card in good standing, the complete credit history and associated points will be shared with your account, too. So, even someone with no credit history can suddenly have a 750 credit score. 

The piggyback technique is widely used by unethical users to boost their credit scores and deceive creditors. Industry executives promised to investigate the scoring process, but later reversed their position. Thus, thousands of people continue to manipulate their credit ratings.

Manipulation of Balances

Maxed-out credit cards are bad news for your credit score, but some people manipulate their balances to achieve a perfect credit score. These unscrupulous individuals capitalize on the flexible utilization of credit accounts. To maintain a healthy credit score, your revolving balance (the amount that remains unpaid on a credit account) must account for less than 30%. So, to avoid poor ratings, credit hackers distribute the amount outstanding across several credit cards. 

Conclusion

Credit manipulators have been able to make tens of thousands of dollars thanks to numerous loopholes and discrepancies in the existing system. Of course, it is unethical and sometimes illegal to take these approaches with creditors. This is why working with reputable, experienced credit repair experts, such as those at The Phenix Group, is vital to maintaining the health of your credit.

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