Keep Eye on Your Bust Out Fraud Score

BLUF: There is another score out there know as the Bust-Out Score, and churning credit cards has the same behavior as bust-out fraudsters. If we don’t take it easy on new accounts we are very likely going to have our Chase or AmEx accounts frozen and reviewed.

A year and a half ago, I wrote disparaging articles about Chase and their 5/24 rule, but today I write about why 5/24 may have been incorporated into practice and is needed to keep the bad eggs out. The war is not on churning, but rather on “Bust-Out” fraudsters. It is sad that Bust-Out fraud and how our hobby pretty much hit the same red flags that Experian wrote about in their white paper found here. I kind of understand why Chase has been so stingy for new credit on top of using financial reviews on churners, but I am kind of thankful that their due diligence is mostly accurate in separating fraudsters from churners.

What is bust-out fraud?

All charts from the Experian white paper “Bust-out fraud: Knowing what to look for can safeguard the bottom line”

The end goal of bust out fraud is to max out every line of credit and disappear, then sell off all there ill gotten goods for cash. This includes writing bad checks to pay off credit lines for utilize a credit card over 100%! The fraudster starts with building good credit and slowly opens many accounts and increasing their credit lines. Then one day they just go fucking crazy and disappear sticking the card issuer with unpaid debt. Then they sell the goods and live there lives on their own private islands in the Caribbean (or not). The white paper sums it up real nice here:

Bust-out fraud, also known as sleeper fraud, is primarily a first-party fraud scheme. It occurs when a consumer applies for and uses credit under his or her own name, or uses a synthetic identity, to make transactions. The fraudster makes on-time payments to maintain a good account standing, with the intent of bouncing a final payment and abandoning the account.

During the process, the fraudster builds up a history of good behavior with timely payments and low utilization. Over time, he or she obtains additional lines of credit and requests higher credit limits. Eventually, the fraudster uses all available credit and stops making payments. Overpayments with bad checks are often made in the final stage of the bust-out, temporarily inflating the credit limit and causing losses greater than the account credit limit.

This is troubling because many of us are in the early stages of busting-out. We all do have these under utilized gigantic credit limits with perfect on time payments. If I look at my stats I am surprised that they even give me any more cards at all. Here is what the card companies are looking for:

  1. Bankcard inquiries increase steadily over time, starting at an average of two inquiries approximately 15 months before the bust-out. About three months before bust-out, inquiries increase, peaking at about seven.
  2. Bankcard accounts increase steadily over time. Fifteen months prior to bust-out, the fraudster holds an average of seven cards. Three months before bust-out, that number increases to an average of 10 bankcards.
  3. Credit utilization remains steady until three months prior to the fraud, at which time it increases significantly.
  4. No delinquencies occur until the point of bust-out, and then, like credit utilization, they increase dramatically.

So my record at Chase must be setting off some flags out there. I would like to think that my physical presence at a Chase brach on a monthly basis, along with military status helps assuage this fear of busting-out. Also I have had a card with them since 2011 and in the last 7 years I haven’t done anything as bad as a single late payment. The end stages of the fraud look like this:

  • Account is 90 days or more delinquent
  • Balance is close to or over the credit limit (70 percent or above)
  • Payment has been returned, i.e., a bad or nonsufficient-fund check was submitted
  • The account holder cannot be reached using the address or phone number provided
  • The same condition exists in more than one account either at one or multiple institutions

Other things like account age, new accounts opened, and debt profile are similar for fraudsters and churners alike:

  • The oldest card average age in a bust-out profile is 98 months (8.2 years)
  • The fraudster has opened 2.9 cards vs. 1.1 cards in a 12 month period
  • 64% of bust-out fraudsters’ profiles are made up of bankcards, vs. 51% in the typical population

The 5/24 rule is a good way for Chase to prevent Bust-Out fraudsters and Churners alike as 5 new accounts in 2 years according to Experian is the first red flag of 2.90 new accounts in a 12 month period. Now I can’t seem to explain why these cards seem to be exempt from the rule.

The last striking similarity to our hobby is the amount of total inquiries in a year. The report states:

bust-out fraudsters have almost five times as many inquiries as the good accounts, with 5.23 bankcard inquiries compared with only 1.07 in good accounts. This information shows that the bust-out fraudsters actively apply for credit cards.

How to not get shut down

There are things that do define the churner from the fraudster. For one, the ownership of a house is a major sign you are not going to go fucking crazy and bust-out. The report says:

As we mentioned, bust-out fraudsters tend to have fewer nonbankcard financial relationships. For example, they have, on average, 0.5 real property trades (mortgages, home improvement, mobile homes and second mortgages) compared with 1.7 and 0.83 trades observed in good accounts and in the national average, respectively. This finding is in line with the common belief that bust-out fraudsters do not typically own properties. At the same time, however, this figure also implies that we should not expect them to have absolutely no property loans.

The next is to join a credit union like Navy Fed. The report says:

Bust-out fraudsters also tend to have fewer credit union relationships, as illustrated in the chart below. With only 0.3 credit union trades, they have three times fewer than that of good accounts.

Also the things that fraudsters and manufactured spenders buy may be alarming to the card issuer. Since the bust-out plan is to max out all the credit and cash out, they buy items than can easily be converted to cash. Unfortunatly these are the same things that MSers do to hit those bonuses:

  • frequent convenience checks
  • frequent cash advances
  • multiple payments within one billing period from different accounts
  • purchases from high-risk, high-value merchants
  • unusual purchase amounts (e.g., $1,000 at a dry cleaner)

Another article by AmEx can be found here, and it lists out other questionable items:

  • orders containing many of the same items
  • orders of a “hot” product (i.e., highly desirable goods for resale)
  • customer is purchasing large quantities of high-priced goods without regard to color, size, product feature, or price

Bust-Out Score

There seems to be another score that is kept internally by the card company known as the Experian® Bust Out Score used in detecting these high-risk bust-out triggers prompting investigators to conduct a manual account review. If you see a credit report pulled by Chase unrelated to a new card or mortgage opened then you might be under review. The report states:

In addition to evaluating transaction and payment activities, the investigators also may pull the account holders’ credit reports to assess activities with other creditors. In other words, credit data typically is retrieved during investigation but is not used as the leading indicator of bust-out.

Often the combination of new accounts, increased utilization, as well as multiple frequent credit inquiries cause this score to rise and prompt a manual review. For example this theoretical case below shows how a bust-out score of 861 prompted an early review and saved the company $64,700 in potential bust-out fraud.

Something as simple as a 10% utilization increased to 70% will prompt this review because Chase would save the most money by shutting you down before you got to a point of busting out. Simply contacting the bank is already reassuring to them as that is an activity that fraudsters do not do. Make sure your address is up to date and letters don’t get returned or forwarded.

Conclusion

We are all on thin ice as churners! Our hobby has put us on the radar of the big banks due to our multiple accounts and our frequent credit inquiries. Try not to give them an excuse to shut you down by over utilizing cards or buying cash equivalents like bitcoin or gift cards. Take it easy, and don’t apply for every product out there!

Ya’ll have been warned, show it down out there. I personally am going to hold out on new applications until 01 Aug 2018 for the SPG Luxury Card. This should give a good 4 month rest and let my Bust-Out score drop.

-Derp

One Response to Keep Eye on Your Bust Out Fraud Score

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