Fair Isaac to stop recognizing authorized user accounts

By Jeremy M. Simon

Editor's note: See more recent story, "Piggybacking gets clemency from FICO"

Fair Isaac, creator of the popular FICO credit scoring model, plans to introduce a new scoring model that will no longer recognize credit card accounts for authorized users.

The goal, Fair Isaac explains, is to prevent credit repair firms from exploiting authorized user accounts through a practice known as "piggybacking," which enables people to rent out their good credit scores to individuals with bad credit who are hoping to improve their score.

According to Fair Isaac, one of the three credit bureaus (Experian, Equifax or TransUnion) will begin using the new scoring model in September 2007, although which one was not specified. The other two credit bureaus will adopt the new model by mid-2008.

Experts say that the adoption of the new scoring model could mean a decline in the credit scores of millions of authorized users. Based on Fair Isaac estimates, 30 percent of the 165 million consumers with sufficient information on their credit reports to calculate a FICO score have an authorized user on their account.

For those authorized users with no credit history of their own, they will see their credit score vanish, experts predict.

Although the change aims to curb piggybacking, it could also impact legitimate authorized users who have used the strategy to establish their credit history. Consumers with limited or bad credit histories have used the technique for years to build a good credit history.

Consumers who have no credit history or bad credit may therefore want to try other strategies for building a solid credit history over time.

Among these options, married consumers who are listed as an authorized user on their spouse's credit card account may decide to convert it to a joint account. Separately, they can apply for a credit card in their own name.

Both joint and individual credit card accounts help people to build their credit histories, since having a personal credit history a good precaution in case the consumer becomes divorced or widowed.

Additionally, consumers with little or bad credit should still be able to qualify for a secured credit card, which require a deposit on application but frequently are upgraded to unsecured credit cards if the cardholder demonstrates responsible use.

Since the objective is to establish credit, consumers should be sure the card issuer reports account activity to all three credit bureaus.

Published: July 19, 2007

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