FICO Relents; Credit Card Authorized Users Can Boost Their Credit Scores

Filed in archive Credit on August 12, 2008

Photo courtesy of iStockphoto, Eugene Kuklev

Fair Issac Company, known also as FICO and as the inventor of the "credit score", has changed its mind on a plan that would have stopped people from becoming "authorized users" on others credit cards in order to boost their credit scores. Instead Fair Issac will continue to let authorized users boost their scores via their connection with good-credit customers. At the same time, Fair Issac says it will be more aggressive about finding and penalizing those who try to "piggyback" on the credit of people they don't even know in an effort to fool lenders into thinking their credit is better than it is.

If some of this confuses you, I'll back up.

Earlier this year Fair Isaac announced it would be tweaking its scoring system, with part of its refinement being to target "authorized users" on credit cards - people who are allowed to use the credit cards of others without being liable for actually paying the bill. In the past, parents might put kids as authorized users, or spouses with good credit might put their other half as an authorized user, all with the goal of helping boost the credit history & credit score of that user. Kids would then be more likely to get credit cards or loans at better rates down the road, and spouses with poor credit histories could improve their scores by being linked to their good credit spouses. As long as the authorized user didn't go hog wild spending on the card, it worked to everyone's satisfaction.

However, FICO began to see one problem with this system. A black market sprung up, in which good credit customers would "loan out" their good credit histories by putting strangers on their cards as authorized users for a fee. If you had bad credit, you could pay a certain amount of money to become an authorized user on the credit card of an upstanding credit citizen and your credit score would rise as a result, even though you hadn't done a thing to prove you'd changed.

(If you're wondering why people would sell out their good credit, there was actually a middleman who connected the good and bad credit customers, so the bad credit customers would become authorized users but would never actually get the credit card number they were being associated with.)

This presented a problem for FICO, because their scores become worthless if people game the system and FICO's partner lenders are giving out loans to bad credit customers based on faulty information about a person's credit worthiness.

Fair Issac's plan was to discontinue crediting authorized users, but there was resistance:

Lenders, meanwhile, raised a regulatory concern. They told Fair Isaac that they used FICO scores to comply with the Equal Credit Opportunity Act, which requires lenders to consider a spouse's credit history when weighing a potential borrower's credit risk. If Fair Isaac stopped recognizing authorized users, lenders said they wouldn't be able to use FICO scores to meet that requirement.

So, if you had been hoping to use the authorized user angle to improve or establish your credit, you are back in business. Whether the fraudsters are also back in business remains to be seen.