Automakers are handing out new car collections to anyone with great credit, no questions asked – at least for now.
The reason: a rise in “bust-out” fraud, where scammers quickly max out their credit limits and accumulate multiple loans before vanishing. **Point Predictive** reports that these schemes have increased by **83%** over the last five years, with **FICO** labeling it an “infinite money glitch.”
Here’s how it works: a scammer with great credit opens multiple credit accounts, uses them to purchase multiple cars, and then disappears, often leaving behind a trail of debt that’s too small for lenders to bother with. It’s like a digital version of a classic credit card scam, but on a much bigger scale.
The real problem emerges when lenders start requesting the first car payment. At that point, the scammer’s credit is ruined, but the damage is often minimal, and the lender is left to deal with the fallout.
What this means: for the time being, people with excellent credit can potentially get multiple cars without much hassle – a phenomenon that’s both astonishing and worrying. However, this trend is unlikely to last, as lenders will eventually start to take notice and tighten their credit standards.
Why are these scams working?
The answer lies in the way credit scoring works. FICO scores are based on a combination of factors, including payment history, credit utilization, and credit age. Scammers are exploiting a loophole in this system by taking out multiple loans in a short period, which initially boosts their credit score. This allows them to qualify for more credit, creating a snowball effect that’s difficult to stop.
What’s being done to stop these scams?
Lenders are starting to wake up to the issue, with some institutions implementing stricter credit checks and requiring more information from applicants. However, this is a cat-and-mouse game, with scammers constantly finding new ways to exploit the system. **Point Predictive** is working with lenders to develop more sophisticated fraud detection tools, but it’s an uphill battle.
What’s next?
It’s likely that lenders will eventually crack down on these schemes, making it harder for scammers to get away with it. However, in the meantime, people with excellent credit may be able to take advantage of this loophole. Whether this is a “gift” or a “curse” remains to be seen.
