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Credit Piggybacking

“Credit piggybacking” is a term that describes an authorized user ‘piggybacking’ off the strong credit of another (normally a parent or spouse). Lately, credit repair companies/scams have started selling this ‘privilege’ to individuals with poor or marginal credit, having them piggyback off an individual with good credit (the company would pay someone with good credit a fee per account to ‘rent’ their credit). When the individual is added as an authorized user, their credit history with that account is automatically updated – presto, an overnight improvement to one’s credit score. Obviously this practice has a lot of negative implications for lenders who largely base their loan criteria upon this score. Regulators haven’t stepped in because they say that technically it isn’t illegal. Credit card companies are reticent to change their policies to limit authorized users – too profitable for them. So Fair Isaac, the behemoth of the credit scoring industry (company that developed the FICO credit score), has decided to change their scoring formula to ignore references to authorized-user accounts. So even if companies continue to report the information to the credit bureaus, it won’t impact the bottom line (your credit score).

What You Need to Know

  • TIMELINE No one [that’s talking] knows exactly how or when this change will occur. This month, the ‘new’ scoring formula will be introduced at one of the bureaus, followed by the other two during the next year. Even then, the benefit of the authorized user won’t likely diminish overnight, as not every lender will immediately switch to the latest FICO version.
  • WON’T IMPACT JOINT ACCOUNTS The change will only impact authorized users – joint account holders will continue to both be reported.
  • REACH While this doesn’t impact the majority of people, 41 million consumers are currently listed as authorized users on accounts – pretty dramatic. Obviously the greatest impact will be the 2 million who only have information as an authorized user in their credit file – typically young people (often college students), and spouses that don’t have credit in their own names.
  • BOTTOM LINE Although it may take time for lenders to adopt the new scoring model, authorized-user accounts are no longer a reliable way to boost someone’s credit score.

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