Changes in FICO Scoring Algorithm Coming -

A major change to the FICO® credit score formula was announced by Fair Isaac Corporation earlier this week. FICO scores will no longer factor authorized user accounts into their credit scoring formulas.

This change was scheduled to be released to one of three repositories in September.  The remaining two repositories will get the release in early 2008. 

Consumers who are listed as authorized users on credit card accounts will likely see a significant change in their credit scores when this modification takes place later this summer.

For most consumers, this change will have a negative impact on their credit scores. Only consumers who are listed as an authorized user on negative accounts or accounts that have balances that are close to the credit limit will possibly see an increase in their credit scores.

Adding a family member or friend as an authorized user on an existing credit card account has long been used as a way to establish credit. Many parents added their children as authorized users in order to help them build their credit history.

Recently though, unscrupulous organizations started using this system as a way to fraudulently sell authorized user account access to consumers with credit problems. This credit repair loophole was part of the motivation for the FICO score change.

Borrowers who are benefiting from authorized user accounts on their credit reports will see their credit score decrease when this change takes effect. They will essentially be "losing credit" for these accounts.  Some borrowers with authorized user accounts that have late payments or high balances could possibly see an increase in their score.  Fair Isaac has reported that 30% of the population has an authorized user account listed on their credit reports. That means that between 60 and 75 million consumers will be impacted by this change.