II. Who will be affected?

     The practice of becoming an authorized user on another person’s credit account has long been used by college students and poor-credit consumers alike to establish credit as well as to rebuild credit. This was a common strategy by parents to add their “children as authorized users in order to help them build their credit history.” [6] Similarly, consumers with poor credit scores would seek a creditworthy borrower's account to improve their credit rating. This controversial, but legal, credit-building strategy, often refered to as “piggybacking,” allowed consumers with little or poor credit scores to add “themselves as an authorized user on the credit card account of someone with a good credit score and receive a credit score boost.” [7]

     Another specific group of consumers who will greatly be affected by these changes are female spouses. In a study conducted by Credit.com, 61% of the individuals who identified themselves as authorized users were woman. [8] This disproportiante percentage is due to the trend that “most of the time it’s the woman who changes how she uses credit and becomes an authorized user on her husband’s account.” [9] Accordingly, newly divorced woman may particularly be susceptible to this modification. [10]

III. What has motived this change?

     Lenders have long known about the “piggybacking” loophole and have complained that this gap undermines the system as well as distorts the credit score system. [11] As this process grew in popularity, internet credit repair companies have joined this campaign of matching up poor credit users to willing creditworthy consumers for a fee; essentially defrauding the lenders. [12] Fair Isaac claims that this change is intended to protect lenders and FICO scores from the abuse of these “new kind of credit repair services” which “sell consumer credit card histories to credit applicants in order to purposefully misrepresent the applicants' own credit history to lenders and other businesses.” [13] Dr. Mark Greene, CEO of Fair Isaac, stated that Fair Isaac “will continue working with lenders, regulators and others in the credit reporting industry to end deceptive practices that fraudulently misrepresent consumer credit histories for profit." [14]

IV. How will this affect an authorized user?

     Experian, one of the three leading credit reporting agencies, has taken the reigns on implementing FICO 08. [15] It is expected that Equifax and Transunion are soon to follow and will put FICO 08 into practice sometime in early 2008. [16] Consequently, young adults, poor credit holders, and spouses will no longer be able to receive the benefit of being an authorized user on another person’s credit account. The millions of consumers who are currently benefiting from an authorized user’s account will soon see a decrease in their credit score. [17] John Ulzhheimer, current president for Credit.com, states that “[a]uthorized users with no credit history of their own will see their credit score disappear. When these consumers apply for credit they'll probably be rejected.” [18]

V. Conclusion: What is an authorized user to do?

     While being an authorized user was one way to build credit, it was not the only way. [19] One quick-fix remedy that is available to an authorized user is to become a joint account holder. [20] “This means that you will have equal liability for the payments and for the debt,” [21] and therefore your credit score will not fall victim to this change. Ulzheimer claims that this is particularly important step for any spouse to take to safeguard one’s credit record. [22] Other options consist of applying for new credit. Whether it is a new credit card, a gas credit card, or a secured credit card, the goal is to establish a credit record. [23]

     The die has been cast and the Fair Isaac Corporation will completely implement FICO 08 within the next year.  Although the ramifications of FICO 08 will not occur suddenly, it is a good idea for authorized users to start building their own credit as soon as possible.  While FICO 08 may seal the gap for authorized users to obtain a credit history quickly and easily, there are other routes to establish one’s credit.  Whether it is through joint accounts or applying for new credit cards, there are a lot of options out there.

[1] Fairisaac.com, Fair Isaac Moves to Protect Lenders from Fraudulent Manipulation of Authorized User Credit Card Accounts, http://www.fairisaac.com/NR/exeres/FAC104CE-DF7F-4610-8A36-85F39C4ED9AB,frameless.htm (last visited Sept. 24, 2007) (hereinafter Fair Isaac Moves to Protect Lenders).

[2] John Ulzheimer, More News About the Fico Credit Score Change, http://www.credit.com/credit_information/credit_report/More-News-About-the-FICO-Score-Change.jsp (last visited Sept. 24, 2007) (hereinafter Ulzheimer, More News About the Fico Credit Score Change).

[3] Efinancedirectory.com, Change in FICO Scoring System Could Affect Mortgage Loan Availability, http://efinancedirectory.com/articles/Change_in_FICO_Scoring_System_Could_Affect_Mortgage_Loan_Availability.html (last visited Sept. 24, 2007) (hereinafter Change in FICO Scoring).

[4] John Ulzheimer and Emily Davidson, FICO Scores Dropping Authorized User Accounts, http://www.credit.com/credit_information/credit_report/Consumer-Alert-FICO-Formula-Changes.jsp (last visited Sept. 24, 2007) (hereinafter Ulzheimer, FICO Scores Dropping Authorized User Accounts).

[5] Sandra Block, Shortcut to good credit will end, Freep.com, Aug. 5, 2007, available at http://www.freep.com/apps/pbcs.dll/article?AID=/20070805/BUSINESS07/708050572/1002/BUSINESS.

[6] Ulzheimer & Davidson, FICO Scores Dropping Authorized User Accounts, supra note 4.

[7] Consumerist.com, Fico Removing “Authorized Users” From Calculations; Credit Piggybackers Scores Dropping, http://consumerist.com/consumer/leaks/fico-removing-authorized-users-from-calculations-credit-piggybackers-scores-dropping-288808.php (last visited Sept. 24, 2007).

[8] Ulzheimer, More News About the Fico Credit Score Change, supra note 2.

[10] Change in FICO Scoring, supra note 3.

[11] Brigitte Yuille, FICO Credit Score Drops Authorized Users, Bankrate.com, (last visited Sept. 24, 2007).

[12] Change in FICO Scoring, supra note 3.

[13] Fair Isaac Moves to Protect Lenders, supra note 1.

[14] Id.

[15] Id.

[16] Ulzheimer, More News About the Fico Credit Score Change, supra note 2.

[17] Block, supra note 5.

[18] Id.

[19] Change in FICO Scoring, supra note 3.

[20] Ulzheimer, More News About the Fico Credit Score Change, supra note 2.

[21] Id.

[22] Block, supra note 5.

[23] Id.