How to Repair Your Credit Score - Authorized Users, Tradelines, and Credit Piggybacking - Credit Card Debt Law

How to Repair Your Credit Score - Authorized Users, Tradelines & Credit Piggybacking

Fair Isaac, the developer of the proprietary model used for the widely accepted FICO credit score, has announced that it has reversed its 2007 FICO 08 decision to remove the effect of an authorized user on a credit card account on the credit score of the authorized user. Its press release explains that it will implement patent pending technology to distinguish legitimate authorized or supplemental users from intentional attempts to tamper with an individual’s credit rating during its calculation of credit scores.

Prior to its 2007 decision to prevent credit card piggybacking, families added spouses and children to credit cards as authorized users to permit them to use the credit card for purchases as well as build a positive credit history and boost their credit scores when they may not otherwise be able to qualify for credit at that interest rate. An authorized user is permitted to use the credit card but is not responsible for any money charged to the account (including their own purchases). More than 50 million people are authorized users on another individual’s credit card.

For those with a poor or unestablished credit history, or a bad credit score, it allowed them to borrow and use the credit of another through the requirement that the account holder take responsibility for repayment of the debt owed on the account.

Why did Fair Isaac make the change to remove the effect?

During 2006-2007, several websites and credit repair agencies offered those with bad credit the ability to artificially inflate their credit score by renting the good credit of an anonymous individual. The individual with poor credit paid the credit repair company which then paid a portion to the individual with a good credit score and credit history. Credit repair firms were charging thousands of dollars for this sort of quick fix. The concern was that individuals were artificially (and perhaps fraudulently) inflating their weak credit rating and causing lenders to take on a risk of default on the debt that they were not properly compensated for.

Why reconsider the decision and allow authorized user accounts to impact credit scores?

The Equal Credit Opportunity Act requires that lenders consider the credit history of accounts which both spouses are permitted to use when they assess a spouse’s credit risk. If the FICO score did not consider authorized user accounts, lenders would have to find another way to meet this requirement.

Critics objected to the removal of authorized user accounts from credit score considerations because it would leave up to 3 million people without sufficient credit history to generate a credit score, and others would be subject to a lower credit score, increasing the cost of their borrowing.

Fair Isaac obviously felt that the new calculation method for the FICO credit score sufficiently protected lenders from abuse and eliminated the credit repair quick fix that authorized user accounts offered.

When will the change take effect?

The press release by Fair Isaac says the change is expected to take several weeks and will be implemented as soon as possible. But a Bankrate article notes that it could be a long wait.

Is piggybacking legal?

There has been vigorous debate over whether artificially inflating credit histories through illegitimate authorized users (non-spouse, non-children) is legal. I’m not going to provide any legal advice - you should consult your attorney.

How much could you get for renting your credit history?

From numbers that I have seen on the internet from prior to the 2007 decision to remove the effect, credit repair providers were paying between $200 and $700 per account, about 25% of the amount paid by the debtor for credit repair. More money was paid for seasoned tradelines with high credit limits compared to newer accounts with smaller credit lines.

What companies are involved in credit score piggybacking, which is also known as renting a credit score or adding a tradeline?

I found a few companies offering this service via Google, but many of the providers that I saw mentioned in 2006-2007 news articles no longer offered this service on their website, had a non-functioning website, or had not yet updated their website to reflect the recent change in the scoring model.

Are any of these credit repair companies reputable?

No idea. EXTREME CAUTION is warranted.

How much could the credit score of the authorized user increase?

An anecdotal story used by Bankrate in a 2007 article stated that the individual had a 65 point increase. Of course, only the history of the account that one is an authorized user for is considered in the authorized user’s credit score, and every account is different. The other accounts of the primary account holder do not pass any benefit or detriment - so it’s impossible to draw conclusions from the credit score of the account holder.

Some have warned that authorized user accounts are not a cure all since they aren’t in and of themselves a major factor in your credit score. Additionally, any effect now may be less because it may be that Fair Isaac has downgraded the effect of authorized user accounts on credit scores.

What kind of savings can a higher credit score yield for an individual?

The number that I have previously seen is that a 30 point increase in your credit score can decrease interest paid over a year by $105. Of course, over the life of a mortgage, small changes in interest rates can add up to big savings.

What should the account holder who is considering an authorized user know?

You are solely and completely responsible for the actions and debt of the authorized user to the credit card issuer as if you had incurred the debt yourself. High balances on the credit card could also impact the assessment of the primary accountholder’s credit availability.

If you are considering signing up to rent your credit score, among other things, you should consider the reputation of the service, potential identity theft problems, and whether you are protected from the user running up charges on your account.

Any downside for the authorized user?

Both good and bad credit history can flow to the credit report of the authorized user. If the account goes into default or collection, that information will be reflected in the authorized users credit score. But the individual can ask to be removed as an authorized user and have the information removed from their credit history. Of course, that will take time, and if you were renting the credit history and did not know the credit information, it’s unclear exactly how this would be accomplished - though I’m sure a system could be put in place.

If you are considering paying a credit repair firm for a quick fix, you’ll have to weigh, among other things, the cost, the potential that the credit score piggybacking won’t have the desired effect, and the reputation of the credit repair agency.

Will credit repair agencies return to credit piggybacking?

That’s anyone’s guess. Since there is alot of money in fixing bad credit scores, the answer is probably yes. It seems likely they’ll test the system and figure out if they can get around the FICO credit score safeguards.

What would the FICO model likely look for in order to differentiate legitimate authorized users from intentional tampering?

These are just speculative, but I would guess they would examine these four characteristics:

Family Relationship - Of course, in a Bankrate article, the writer posed the question of whether users could game their credit score through an authorized user account on the credit card of a family member with a good history and the answer was no.

Geographic Proximity - One way to determine whether authorized users are strangers.

Use of Credit Line by Authorized User - Credit repair occurred anonymously and did not provide for the user to use the account holder’s credit line.

Multiple Authorized Users - If you’ve authorized more than one non-family member, that may be considered evidence of credit score piggybacking.

Two other considerations worthy of note for those considering it:

Decreased Impact on Credit Scores - Fair Isaac may have downgraded the impact of authorized user accounts in order to discourage credit score piggybacking providers.

Opt Out - Fair Isaac may allow lenders to see the credit rating without the impact of the authorized user accounts.

DISCLAIMER. This is NOT legal advice and is NOT a recommendation that you engage in this activity. Use at your own risk.

Credit Card Debt Law

How to Repair Your Credit Score - Authorized Users, Tradelines & Credit Piggybacking

Leave a Reply

Pages

Archives

Categories

Recent Entries