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FICO SCORES DROPPING AUTHORIZED USER ACCOUNTS
Earlier this week, June 1, 2007, the Fair Isaac
Corporation announced a major change to the FICO credit
scoring formula. Authorized user accounts will no longer
be factored into the scoring formula.
This modification will occur later this summer and as a
result, consumers who are listed as authorized users on
credit card accounts will probably see a major change in
their credit scores.
This change will be a negative force on the credit
scores of most consumers. The only consumers that are
likely going to see an increase in their credit scores
are those that are listed as an authorized user on
negative accounts or accounts that have balances that
are close to the credit limit.
The inclusion of a friend or family member as an
authorized user on an existing credit card account used
to be a simple method for establishing credit. It was
common for parents to add their children to their credit
card accounts as authorized users in order to help them
establish credit histories.
Conversely, it has common for credit repair
organizations to fraudulently sell authorized user
account access to consumers with credit issues. This
credit repair loophole was one of the main reasons for
the FICO score change.
What does this mean to me?
- There will be no benefit of being an
authorized user on someone else’s credit card.
- As a result of this change, it is probable that your credit score is
going to drop.
- If you have paid for the ability to have you name included to someone
else's credit card as an authorized user it is likely
that you are in the wrong for deceiving lenders. If this
is the case, remove your name immediately and stop doing
business with these companies being that they are in
violation of federal and state laws.
- You are enabling credit card fraud if you have agreed to be paid by a
company to rent out your credit card accounts.
- It is a good idea to rethink your motives if you are getting married and
are thinking about closing out your accounts because you
plan on adding your name as an authorized user on your
spouse’s credit cards.
- It is probably a good idea to open some credit card accounts in your
name if you are married do not have any credit cards
where you are the primary cardholder or a joint
cardholder.
- Women will be much more negatively impacted than men being that its the
women who are added as an authorized user more often.
- If you are new to the country, or are looking to establish credit, you
will likely have to rely secured and subprime credit
card offers to help establish credit.
More questions and answers...
How is this going to impact consumers?
Any consumer that has benefits as a result of being
an authorized user on an accounts will see their credit
scores go down. Basically they will be 'losing credit'
for these accounts.
What is an authorized user account?
This means customers are allowed to be added
to another person's credit card account without having
their credit checked. The authorized user will then be
able to use the credit card and have their account
activity appear on their credit report. The authorized
user has no liability for the payments.
How many people will be impacted by this change?
It has been reported by Fair Isaac that 35%
of the American population has an authorized user
account listed on their credit reports. Therefore 65 80
million people are going to be affected.
Why is FICO implementing this change?
This is a result of the credit repair organizations
abusing the authorized user system. Some companies were
selling access to authorized user accounts as a way to
help people with credit problems improve their scores.
This practice is illegal. In some cases, this service
would cost the consumer thousands of dollars.
How is it going to be possible for people with no
credit to establish their credit without authorized user
accounts?
There are a variety of effective means for build
credit. People with no credit can still apply for their
own gas credit card, retail credit card, secured credit
card or
subprime credit card as a way for building
credit.
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