FICO stops authorized users’ credit scores

Wednesday, June 27, 2007

In response to a practice called ‘credit piggybacking’ and so-called instant credit companies, Fair Isaac is changing its FICO scoring system. The credit scoring company will no longer include authorized user accounts when calculating credit scores.

Recently, marketers have found a way for those with damaged credit to reap the rewards of a clean credit record for a fee. It’s called ‘credit piggybacking’. Some consumers are now renting their personal information to companies that will use their name and credit card number to let others benefit from their good credit. Consumers with a spotless record can earn many hundreds of dollars by allowing strangers to become authorized users on their credit cards.

This practice has been quietly used by parents trying to help their children build a good credit history quickly. New immigrants and spouses have also benefited from it. By being an authorized user on someone else’s credit card, you have instant access to their history of payments, without the legal responsibilities for paying the bills. This is one legitimate way to help build a solid credit history. If you already have a credit history and the original account holder has an excellent credit record, it may boost your credit score by a few points.

However, people with low credit scores trying to obtain mortgages or other loans with better terms have also taken advantage of how a FICO credit score includes authorized user accounts, and have boosted their credit scores piggybacking on someone else’s good record. While legal, concerned industry experts call ‘credit piggybacking’ a fraudulent attempt to increase someone’s score that does nothing to educate those with bad credit or solve other issues they may have on their credit reports. To solve this problem, Fair Isaac will be implementing a new credit scoring system starting September 2007.

This new system will impact many consumers by eliminating authorized user accounts when calculating a credit score. It will particularly affect those that are just starting to build a credit history, such as college students and recent immigrants. It will lower newcombers scores significantly, by preventing them from creating a good credit history in a short period of time. The benefits of a good credit record translate into lower interest rates, access to utility services, rental apartments, and consideration for employment, among others.

If you are considering selling your good payment history to an Internet credit-booster, remember that doing so can be very risky. Building a solid credit history takes time, responsibility, and good money management skills. Damaging a credit history, however, can happen very quickly. Even though companies claim they can protect your personal information and will not release it to a new authorized user, renting your record opens up new possibilities for identity theft. What’s more, if you’ve rented your good record to someone with a history of not paying his bills who’s to say he’s changed his habits? You may find yourself responsible for footing the bill. If you are interested in helping someone establish a credit history or raise their credit score, don’t let them rent or use your good name and credit information: teach them how to handle their money responsibly and dispute errors on their credit report.

For information and tips on how to build and maintain good credit, check out the credit section of our website.