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.
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