FICO Soon to Ignore Credit of Authorized Users
Below is a MRR and PLR article in category Finance -> subcategory Credit.
FICO to Exclude Authorized User Credit: What You Need to Know
Overview
Fair Isaac Corporation (FICO) is making significant changes to its credit-scoring formula to combat the practice of "credit renting," a move that could affect over 30% of consumers.
The Change
FICO's decision comes in response to credit repair agencies exploiting the system by adding clients as authorized users on accounts with good credit. This boosts the client's score by association, a practice considered unethical and akin to fraud.
Implementation
By late 2007, FICO will test the updated formula with one of the three major credit-reporting agencies: Equifax, TransUnion, or Experian. This change will eliminate any positive credit score impact for authorized users. The remaining agencies are expected to implement the change in early 2008, effectively ending credit renting.
Impact
The change will affect approximately 30% of Americans, many of whom have authorized user accounts. Spouses, children, and grandchildren who rely on these accounts for credit will experience significant drops in their scores. Spouses, in particular, may be hardest hit, as many household finances are tied to a single partner’s account.
Recommendations
Those affected should act quickly to establish their own credit. Opening a new account with the same institution as the current authorized account can help maintain a credit history. If needed, consider having the primary account holder co-sign. A sub-prime or affinity card may be a viable option for those unable to qualify for mainstream accounts.
Spouses can also leverage household income when applying for a credit card, potentially listing a homemaker occupation and adding the primary earner as a secondary cardholder to increase approval chances.
Conclusion
While FICO's change targets fraudulent activity, it inadvertently affects many innocent consumers. Although it may slightly reduce loan defaults, the broader impact will be felt by nearly one-third of the population in terms of credit scores and financial well-being. Taking proactive steps now can help mitigate these effects.
You can find the original non-AI version of this article here: FICO Soon to Ignore Credit of Authorized Users.
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