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Fair Isaac's Pending Credit Scoring Change Will Affect MILLIONS

By
Real Estate Agent with KELLER WILLIAMS LANIER PARTNERS

Edward Jamison, one of the nation's leading authorities on credit and credit repair, authors this week's article on a pending change in credit scoring. For more information on Edward and his services, visit www.JamisonLawGroup.com.

Fair Isaac's Pending Credit Scoring Change Will Affect MILLIONS

I have been forecasting for quite some time that Fair Isaac would eliminate the loophole that allows people to quickly increase their credit score by being added as an authorized user on someone else's established credit card...and sure enough, the time has come.

Marketers Made Loophole Too Prominent to Ignore

For the most part, this loophole has stayed under the radar until recently when a few companies came out of the woodwork with a marketable service that catered to consumers who will benefit from this practice. These companies recruit people from all over the country who have older credit cards with low debt ratios and offer them $100-$300 for each person they add to their credit card as an authorized user. Then, they market to consumers with limited credit histories and/or high revolving debt ratios and offer to have them added as an authorized user on a seasoned trade line for around $1500 per credit card and pocket the difference. As this practice became more popular, it wasn't long before the over exposure of this loophole shed light on the flaws of Fair Isaac's software.

New Software Will Eliminate the Loophole

Under pressure from lenders, Fair Isaac made the decision to invest the money into correcting this loophole. The correction is fairly simple: When Fair Isaac takes that snapshot of somebody's credit file, they are going to look at one extra field that they previously had not looked at when generating the score. That field is the one that says who is responsible for that account.

If the scoring software sees that the person is the primary on the account, then it will score the report just like it had done before and no change to the credit score will take place between the old and the new scoring model. This will also hold true if it says that the account is a joint account. But if they see that the responsibility on that account is as an authorized user designation, they will completely ignore that entire account when calculating the credit score. It doesn't matter if the authorized user was added five years ago or yesterday; they will instantly lose the benefits created, if any, from that account being shown on their credit report.

Going Forward

Due to the fact that the scoring model is changing in a few months coupled with the fact that some lenders are even denying applications in some instances if an authorized user account is present, I would advise that people refrain from getting added as an authorized user immediately. The benefit will soon be gone, and taking advantage of that benefit before it leaves may leave a person at risk for having a loan denied by some lenders.

Show All Comments Sort:
Jackie Moye
Bob Parks Realty - Franklin, TN
CSP
Good info, Lenders have been denying even family members from being authorized useds due to this for months. The info though needs to be kept in the forefront.
Jul 15, 2007 04:00 AM
Armando Rodriguez
QUEST REALTY SERVICES - Orlando, FL
Orlando Homes 4 Sale, Real Estate Broker-GRI
Great info. It's amazing how that FICO number rules our lives! Thanks for the info.
Jul 15, 2007 04:21 AM
Cottage Neighborhood
Cottage Neighborhood - Burlington, IA
Great info! I knew that this was an issue and that mortage officers won't take into consideration good payment on an AU card anyways, so it's good to know that Fair Issac is doing something about this.  
Jul 15, 2007 01:05 PM
Anonymous
G Williams

 

EVERYONE IS PRAISING THIS CHANGES AND I SEE IT AS A NECESSARY EVIL. HOWEVER, THIS ACTION WILL FURTHER DIMINISH AN ALREADY FRAGILE REAL ESTATE MARKET. ITS OBVIOUS THAT WALL STREET IS PROSPERING REGARDLESS OF RECENT REAL ESTATE STATS, HOWEVER LOCAL ECONOMIES ARE SUFFERING WITH HIGH FORECLOSURE AND REDUCTIONS IN PERSONAL INCOMES AND JOB LOSSES. NOW THEY ARE TAKING AWAY A USEFUL TOOL FOR THOSE TRYING GET AHEAD.

Jul 17, 2007 03:41 AM
#4
Mike Elliott
Austin, TX
Thanks for the info.  I've heard that some credit bureaus use different systems for scoring your credit.  I believe it was Equifax that differs from the other two.  Not sure if this is a factor in this discussion, but interesting nonetheless.
Jul 17, 2007 05:30 AM
Anonymous
p tep

why is everyboby sooo happy about what fair isaac does when ther is no rules or regulations for a credit score- the government has no laws for this credit score that effects all our lives- how is it making our lives easier - i just paid off all my bills including my mortgage and my credit score dropped 19 points- when asked why? because theres a machine regulated by the fair isaac that determines your credit score!  well who do make a complain to- write your congress  to complain about no regulations for fair isaac credit scoring

Jul 20, 2007 01:54 AM
#6