Authorized Users back in at FICO
About a year ago, there was a dust-up in the credit world about authorized users of credit. Fair Isaac, the generators of the vaunted FICO score dropped authorized users from their algorithm. Well, they’re back.
What’s an authorized user
In credit-speak an authorized user is someone who is authorized to use the credit account in question. (Brilliant wordsmithing, wouldn’t you say?) What that means is really this. Someone authorized to use a credit card but who does not pay the bill essentially piggybacks on the credit history of the person who does pay the bill. Parents make college kids authorized users, for example.
Psst. Buddy. Wanna buy a credit profile?
The small problem with that arrangement was that literally anyone could become an authorized user, even if they didn’t actually have access to the credit card. Credit repair places exploited this by facilitating a transaction whereby someone with less-than-stellar credit would pay for access to profile of someone who did. The credit repair people took a cut, Mr. Subprime got loan terms better than he normally would have, and FICO was none the wiser.
Until they got wiser.
Fair Isaac decided to eliminate authorized users from its calculation of FICO. The problem with that was that it left a lot of people out in the cold who used the authorized user technique legitimately. Married women and young people were usually the ones affected.
It’s back
Fair Isaac has now decided to put authorized users back into the mix, though they say they’ve fixed the problem of credit repair firms exploiting it. How, exactly, they won’t say.
Now if FICO actually meant something…
August 5th, 2008 at 7:43 pm
Interesting post. It does seem like authorized users are an idea that does not belong in credit scores. I don’t see any reason married couples would need this method of credit scores - it seems better options should be easy to develop. And to me if children are actually building credit why don’t they just do it with their own credit not as an authorized user of someone else’s credit card.
August 6th, 2008 at 6:37 am
Granted, but I think it was the suddenness of the decision that threw people off. Maybe it’s a positive, since it undoubtedly drove some people to develop their own profile through opening a credit account.
August 10th, 2008 at 1:14 am
I think Fair Isaac adding back authorized users was a bad idea. Like you said, literally anyone could become a so called “authorized user”… even if that meant they were paying to be one. Oh great now another wave of people paying to wrongly prop up their credit scores.
October 28th, 2008 at 10:17 am
If you allow someone with worse credit (say, your mother who declared bankruptcy 5 years ago) to piggyback on your good credit by having a joint account or authorized user situation, does that drag down the credit score of the good credit holder? I’m guessing not, or else no one would do this. Just wondering, since I’d like to link some accounts with my mother for non-credit score reasons - emergency access should anything happen to either of us, to be precise.