FICO Backtracks on “Authorized User”

One of the classic ways that students have been able to improve their credit scores has been through the “authorized user” loophole. In this scenario, you are added as an “authorized user” to someone else’s credit card. Preferably someone who has good credit (traditionally your parents ). This boosts your score almost instantly.

As you might guess, it didn’t take long until someone figured out that you could make money doing this. Want to improve your credit score before buying a house? Lay down your money and get paired up with someone else who is willing to let you “piggyback” on their account. The person with good credit gets paid, and you — even though you never actually use (or even see) the credit card account on which you are an “authorized user” — get the score you need to get the loan you want.

Closing — and reopening — the “authorized user” loophole

Last year, FICO, the leading credit score provider, decided that it was time to close the authorized user loophole. The company announced that it would no longer count “authorized user” accounts. The idea was to prevent people from buying their way to a falsely improved credit score.

Now, though, FICO is changing its tune on “authorized user.”

Using a new system (that will be top secret), FICO will weed out which authorized users are legitimate (children, spouses) and which are paid. This way, students and spouses can still enjoy the benefits of an improved credit score for first time loans, but unrelated folks can’t just pay someone to instantly boost their scores.

It is nice that FICO is addressing this problem. The decision to deny “authorized user” accounts probably put several responsible students out of luck for car loans and home loans.

But we will have to wait and see how effective this turns out to be.

*Read this past post for ways to improve your credit score the “natural” way.

image credit: sxc.hu