Why authorized user accounts can hurt you

Authorized User accounts are NOT what they use to be. In short, I use to recommend them but not anymore because they really don’t work now. An authorized user (commonly referred to as a piggyback account) is when someone adds you as an authorized user to their credit account. Then your credit report would be updated to show that account with all it’s longstanding positive history. Sounds good right? Well it was good for years but not anymore. The new FICO scoring model has 4 (yes four) scorecards devoted to credit files with authorized user accounts. The credit system has figured out this loop hole and closed it hard.

Let me give you an example of why authorized user accounts do NOT work. In 2009, I helped a young couple fix their credit to buy their first home. Both achieved over 80% success with our service and had over 700 FICO scores. When the husband applied for his mortgage he had a 710 FICO – sounds good right? Well there are two automated underwriting engines (commonly referred to as LP and DU in the mortgage industry) which effectively underwrite all (ok about 99.7%) mortgage loans in the country (yes I said the entire country). Well these two underwriting engines will decline any loan that has an authorized user account regardless of the credit score. My client whose score was 710 was declined because he had an authorized user account. I did not even know he had an authorized user account because it was not discernable on the credit report. No matter how much money he put down or how great his income, the computer would not approve his loan. When his income was entered as $100,000 monthly (yes $1.2 million per year) along with a 90% down payment the computer was still declining his loan, even with his 710 FICO score. The bottom line was that the computer knew his score was “tampered with” by having an authorized user account and would not approve his loan under any circumstances until the authorized user account was removed from his credit profile and then his loan sailed right through the automated underwriting process.

The bottom line is don’t spend money on these companies who want to sell you an authorized user tradeline with a high limit and longstanding history because it will NOT help you build credit or buy a house anymore!

:)

Matt

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