Don’t jump off too soon; a close look at the entire credit profile may show it’s a net positive
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Dear Speaking of Credit,
I was recently added to my fiance’s accounts as an authorized user to try to help him clear up some fraud. He had a few late payments in the past and now those are showing on my credit report. Is that legal? Can I dispute this since the late payments happened long before I became an authorized user? – Amy
Not only is it legal to report account history that predates you becoming an authorized user, it’s based on a legal requirement.
The practice was put into place to help protect your rights under the Equal Credit Opportunity Act (ECOA) of 1974. This law forbids discrimination against an applicant on the basis of race, color, religion, national origin, sex, marital status or age. The Federal Reserve’s Regulation B, which implements the ECOA, requires that information on “spousal” authorized user accounts be reported to the credit bureaus and considered when lenders evaluate credit history.
While Regulation B places this requirement only when the authorized user is a spouse, lenders have no reliable way to know someone’s current marital status. That has led lenders to simply report all authorized user accounts to the credit bureaus for inclusion in the authorized user’s credit report \u2212 spousal relationship or not.
So that’s why his late payments are showing up on your credit. It’s legal, although the all-inclusive way authorized user accounts are reported has led to some unintended consequences. Most notably, the authorized user system has become a credit repair strategy for consumers with bad or no prior credit. In a tactic known as “piggybacking,” authorized users are added to card accounts for the sole purpose of including an established account with a positive credit history to an otherwise less-than-stellar credit report. As soon as the good-credit data appears on the authorized user’s credit report, the good-credit juice starts flowing, helping build or rebuild the authorized user’s credit score.
Authorized users enjoy the best of both credit worlds. In good times, they can take advantage of the positive history associated with a paid-on-time and low-balance account without the legal responsibility to make payments. Or, in bad times, by not being liable for the balance, the name of the authorized user can be removed from the account and that trade line (account) deleted from her credit report, no questions asked.
In reply to your question of whether you can dispute those older late payments because they occurred before you became an authorized user, the short answer is no. If the reporting of any delinquency is not accurate — for example, if it wasn’t late — your fiance can dispute it with the card issuer and credit bureau. Then, if corrections are made, they will appear on your credit report as well as his.
But, if rather than questioning the accuracy of those delinquencies you simply don’t want those late payments on your credit report, you can easily eliminate this account – payments and all – forever from your reports at your request. That is, as long as you’re willing to end the authorized user relationship on that card. To do so, simply:
- Notify the card company that you no longer wish to be an authorized user, and
- Monitor your credit report to make sure the information is removed. Card issuers report monthly to credit bureaus, so it may take a full billing cycle for the information to get into the credit bureau’s hands and be processed. If it remains longer than a month, dispute the account with the credit bureaus, using the reason that it is “not mine,” to remove all traces of the card’s history from your credit report.
How piggybackers can evaluate their credit ride
I advise you to think twice before you remove the account from your credit report, and thus your credit score. If you stop piggybacking, you will eliminate an established account’s entire credit history from your credit report. That runs the risk of discarding more good credit than bad.
Credit is made of several components. Some parts might be lifting your credit, while others drag. You want to try to figure out the net effect.
Yes, his late payments are a drag on your credit, but that drag might be overcome by the lift provided by other parts of his credit. If the strongest parts of his credit help cancel out the biggest weaknesses in yours, you might want to stay on as an authorized user.
So look at each important part:
- Payment history: Late payments are always to be avoided, since payment history is the most influential scoring category, accounting for 35 percent of the score. However, since it has been a few years since they happened, the damage they caused has been diminished.
- Credit utilization: Low utilization (balance/limit percentage) can be brought on by a low card balance, high credit limit or both. If the utilization on this card is low or lower than any other cards on your credit report, it could be helping you in this category, which accounts for almost 30 percent of your score.
- Length of credit history, as measured by the number of months since the card’s open date. If this is the one of the oldest accounts of any kind on your credit report, it could be contributing positively to your length of credit history, a scoring category that makes up about 15 percent of your score.
- Types of credit: This scoring category considers the range of your credit experience and is worth about 10 percent of your score. If this is the only card on a credit report that previously contained only student and auto loans, you may have already added a few points to your score by expanding the types of credit you use.
And don’t forget, if you do absolutely nothing, those late payments will fall off your credit report automatically after they are 7 years old. By then, the absence of late payments, combined with the card’s increased length of credit history and, hopefully, its low utilization, will be adding even more points your score.
See related:The good, the bad of credit card piggybacking