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When it comes to credit score, there has long been a loophole in the scoring model. Authorized users have been allowed to “piggyback” on the credit scores of others. This has been a great way to boost credit score in preparation for buying your first house, for example. It goes like this. You graduate from college, and you are ready to buy your first house. However, your credit score isn’t where it needs to be. One quick fix is to have mom and dad add you as an authorized user on the credit card they have held and paid “as agreed” for the past 25 years. As an authorized user, you aren’t responsible for the bill, but you get to piggyback on mom and dad’s solid gold credit history. Even better, you don’t even have to receive a physical card. Mom and dad can cut that up when it comes in the mail.

As you would expect, sketchy companies cropped up, promising to match consumers with sketchy credit histories with people willing to place those persons as authorized users on their credit cards — for a fee, of course. Suddenly, total strangers were piggybacking on each other’s credit histories. In June of 2007, FICO vowed to close the loophole.

The problem is that more than 50 million Americans are authorized users — most of them women and young adults. Many consumers could have seen their score disappear altogether, with their authorized user status being the only information on which to base a credit score.

So the FICO number crunchers did some head scratching and came up with a way to include authorized users in their calculation “while materially reducing any potential impact to the score from tampering.” As you would expect, how they do it is top secret. If the formula works as promised, the industry that provides matchmaking services between people with weak and strong credit profiles will cease to exist. People will have to build credit score the old fashioned way — by establishing credit and paying their bills on time.

The good news is that the authorized user loophole may still work in the way it was traditionally used — helping young people boost credit score by piggybacking on mom and dad’s good credit history. As they say, it can’t hurt to try. It’s really all upside and no downside. The worst that can happen is that the authorized user’s credit score will be unaffected. The best case scenario is a dramatic boost to credit score.

Wade Young is a Denver mortgage broker.

Sometimes it’s good to get back to basics. Credit score plays a huge role in the real estate business, yet a lot of real estate professionals don’t know much about it. There are five components to credit score:

1. Payment History — 35%

2. Amount Owed — 30%

3. Length of History — 15%

4. New Credit — 10%

5. Type of Credit — 10%

Payment History — 35% of Score

By far the most important component of credit score is payment history, as it accounts for 35% of a consumer’s credit rating. This category quantifies how good a person has been at paying his or her debts. The algorithm uses common sense logic, reasoning, Hey, if this guy pays other people, he’ll probably pay us too. This category is simple. Pay your bills on time, and your score goes up. Pay your bills late, and your score goes down.

The number of accounts is also important. A person who inherited a house, pays cash for cars and doesn’t use credit cards will be known as a “thin file.” Credit score can be lousy due to lack of use of credit — not just because of negative items. The trick is to have just the right amount of credit lines — not too many, not too few. Most experts agree that one mortgage, a couple of auto loans, and three major credit cards would be a healthy mix, providing all those payments are made on time.

The length of time since your last negative item also impacts this category. The previous 24 months of credit history has the most impact on credit score. It’s hard to believe, but a 4-year-old bad debt may not affect your score as much as being 60 days late on your car payment right now. The goal is to put at least 24 months of space between now and your last negative item.

Amount Owed — 30% of Score

“Amount owed” refers to how much of your mortgage or other installment loans are outstanding compared to how much of that debt has been paid off. The credit scoring formulas are secret, so we will never know exactly how they are computed. However, many experts agree that your total debt on revolving accounts should not exceed 30% of your total limits. The balance on any one card should not exceed 50% of that card’s credit limit. If you have 5 charge cards with total limits of $20,000, you don’t want to carry more than $6,000 in balances. If each of those 5 cards has a limit of $4,000, you don’t want any one of those cards to carry a balance exceeding $2,000.

Length of Credit History — 15% of Score

The credit scoring system tracks the “date opened” for every account, so the longer you hold those accounts (and pay them on time), the better. This category also takes into account how long it has been since you used certain accounts. If your only credit card is a VISA that sits in your jewelry box because it’s only there for “emergencies,” you won’t get much credit in this category — even if you have held that account for a decade. Accounts that lie dormant do not help your score in this category as much as those that are used. Simply use the card periodically, and the length of history associated with that card will positively affect your credit score.

New Credit — 10% of Score

“Would you like to save 10% today by opening up a Target credit card?” Your answer should almost always be “No, thank you.” Saying “yes” to such an offer may harm your credit score in three different ways. First, an inquiry will be placed on your credit profile, which negatively affects credit score. Second, opening new lines of credit in itself is potentially harmful to credit score. And lastly, department store credit cards are viewed as cheesy to the credit scoring system. FICO likes VISA, MasterCard and American Express, for example, but it frowns on Gap, Victoria’s Secret and the like. Be hesitant to open new lines of credit.

Type of credit — 10% of Score

Aim for a “healthy” mix of credit. A motorcycle payment, a Sea-Doo payment and five department store credit cards would not be as healthy of a mix of credit as one mortgage, two car payments and a couple of major credit cards.

Wade Young is a Colorado Mortgage Broker.

How bad are things, actually? Economist Arthur Okun, advisor to President Lyndon Johnson in the 1960s, created the Misery Index. It is basically the unemployment rate added to the inflation rate.

Unemployment rate (5%) + Inflation rate (3.94%) = Current U.S. Misery Index (8.94%)

Under President Carter in 1980 our country experienced a Misery Index of 20.76, contrasted to the good old days under Eisenhower when the index stood at 3.74 in 1953. A quick look at the Misery Index from 1948 to the present shows that our current Misery Index is no where close to setting off alarm bells. But the real question is: can we trust the government’s numbers?

Keep in mind that if people aren’t looking for work, they aren’t counted in the unemployment numbers. My grandma isn’t counted because my grandma isn’t looking for a job, for example. What about people who tire of looking for a job and give up? They aren’t counted. If you want a job but decide instead to go back to school to get your masters because you can’t find a good job, you aren’t counted in the unemployment numbers even though you would really rather be working.

The best thing that could happen to the unemployment rate would be for millions of people to give up looking for a job and decide instead to live with their parents, take up a life of crime, go back to school, or do anything — so long as they give up looking for a job. The point I am making is that the numbers don’t truly reflect reality. The unemployment numbers also fail to include part-time workers who would actually like to be employed full-time. If you want a full-time job but are forced to settle for a part-time job, you are still employed, so you are factored out of the unemployment rate. The way the government calculates inflation is fishy too.

What, then, is the real misery index? When too many people are unable to afford a middle class lifestyle, we will reach a critical point. Something will have to give. Will the people revolt? I don’t know. What I do know is that the cost of groceries, gas and everything keeps going up. Every day it takes a little more money to maintain the same lifestyle.

A service economy is a dangerous game in which the same paper money is moved around in an effort to make everyone feel prosperous. People have forgotten that wealth is not stocks, cash or equity in your home. Wealth is only that which you can hold in your hand — gold, silver, oil, diamonds, water, etc. The real estate debacle has taught us that home equity isn’t wealth. Your paycheck isn’t wealth either. That too can evaporate.

The Misery Index looks tame because of how the numbers are calculated. To find the real misery index, you have to do it the old fashioned way. Talk to people. I know someone who took their dream job in their dream city, but they might have to go back to the job they hated because their house won’t sell. I have a friend who runs the news for a local TV station. He and his wife and child are living with his folks. Yes, he could afford his own place, but it makes more sense when he evaluates his income and situation. I know a couple in their 50s who lost everything because of an expensive investment property on which they had to do a short sale. They get to start saving for retirement in their mid-50s from square one — and these are intelligent people.

Here is what I know. The real misery index can only be determined by talking to people in the real world. Government numbers cannot be trusted. And most of us were snookered into accepting a false definition of wealth. We all suffer from only having adult experiences to reflect upon that are 1-50 years in length. My own adult experiences are only two decades in total. If we all lived to be 900 years old, we would have people around us with references for things being very different, and we ourselves would have lived through various economic times, teaching us not to fall for the scams that have created the financial mess we are in today. I am still an optimist, however. You just never know what fantastic thing could be right around the corner. We might be a short while away from a newspaper headline that reads, “Free Energy — No More Oil!” Whatever the future holds, I will move forward as a pragmatic optimist.

If you read blogs, you probably engage in blog conversations by commenting. There are three ways that I know of to stay up with Internet conversations. First, you can revisit the website, which is cumbersome, of course. Next, you can usually click a box that allows you to subscribe to the thread. The major downside of this is that you probably already get too many emails. The other flaw with this system is that you have to drop what you’re doing to check ten different conversations at ten separate times. Perhaps the best way to track Internet conversations is to use co.mments.com.

Co.mments.com is free, and it allows you to track all of your Internet conversations in one place. That means a lot less stopping and starting because you can stay up with your Internet conversations by going to your tracking page once a day or even once a week instead of every time an email hits your inbox. And you don’t miss anything because it’s all being tracked for you.

All you do is sign up for a free account. Then you simply copy and paste the URL for the conversation you want to follow into your tracking page. You can view all comments from all conversations on this one page. You can clear comments that you’ve read, delete conversations altogether and even see how many people are participating in the dialogue — all from one page. The name of the blog is shown, and the date of the last comment is displayed, allowing you to easily judge if a conversation has come to an end.

Wade Young is a Denver mortgage broker.