I wrote a while back about how FICO (Fair Isaac & Co.) had dropped authorized user accounts from credit scores. Before, being an authorized user on, say, your parent’s card would get you their credit history. They changed it to only joint account holders. That way, credit histories were limited to (often) 2 people. One person’s good credit couldn’t provide, say, 5 more people with credit scores.
But MarketWatch reports that authorized users are back in the game.
Here’s the skinny:
- FICO says they’ve developed an algorithm to distinguish between legitimate (children & family) and illegitimate (paying strangers) authorized users.
- Changes may start by the end of the month, several weeks at the earliest.
FICO says that they’ve been very concerned that their scores actually be trustworthy, piggy-backing undermined that. But they also don’t want to penalize people who use the option legitimately?
Will the algorithm work?
We’ll have to see.
I’m actually a bit surprised by this change. As I see it, it does make sense for spouses to be able to share their credit with each other. They’re part of one legal unit. Even for non-spouses, being joint-account-holder is more serious because there can only be two of you (in most cases). The rules are also supposed to be stricter.
But it makes less sense to be able to impart credit histories to your children. Wouldn’t it be better to teach them personal finance and let them get credit on their own? It seems a much better reflector of reality than simply taking on the parent’s score. More responsible as well.
That said, I also know that it was very hard for me to actually get credit on my own. I ended up going the joint-account-holder route, though a secured card might have worked as well. Getting your children legitimate secured cards teaches responsibility. I know having a debit card for so many years (but not credit card) ingrained in me the importance of only spending what you have and knowing how much you have.
I found a good article on the 10 questions to look into when getting a secured card. Lots of important points. You don’t want a fee, you do want the card to report to all 3 credit bureaus. More points there.
Secured cards do take a while to help you build up a good enough history to get an actual credit card. But if you’re helping a teen/college student, then they probably have the time.
As a note, I strongly recommend staying away from credit repair groups. Some are legitimate, but many are very shady. Most of the information you can find to fix your credit score and history can be found on PF blogs. There are rarely “miracle” fixes. Strategies of disputing legitimate claims or “piggy-backing” as an authorized user may improve your credit score in the short-term but they’re unethical (the former may be illegal) and if/when you’re caught your score will be knocked down again.
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I agree with you — its a pretty surprising move; while I definitely benefited from it years ago, from an objective standpoint it seems questionable.
With regards to students and teens, I agree that it almost seems counter-productive to provide a teenager access to the types of credit cards an inherited extensive history can provide. When I turned 18, I didn’t have much trouble getting one of the student credit cards — unless you’ve made mistakes, it seems like those are pretty easy for students to get.
You are right that in reality the credit score of children should not reflect the parents score, but I am sure it makes financial sense for the credit card companies to issue credit cards to children, when their parents have good credit scores.
At the same time it helps out a lot of people. Yes it is relatively easy to get a student credit card, but it is not everybody that knows how important credit history is, until they have graduated from college and by that time it can take years to build up a good credit score.
Bottom line is I think it benefits both parties when FICO implements this algorithm as long as it eliminates the people paying to get good credit
I suspect they are banking on what the statistics show. It may be that studies made by FICO show that children of people with good credit history are good risks. I’m sure they have their reasons. In this case, I don’t think it is through something they deduced but something they have the stats to back up.
I’ve been thinking of being added to my wife’s card that her parents gave her years ago. The only thing I lack is credit history.
I’ve been watching the piggybacking developments and researching all this as I have less than great credit. During some hard times I fell behind and I am doing everything in my power to rebuild my credit including piggybacking on my father’s credit.
*I have a couple questions in regard to timing, and that is, given the delayed debut of Fico 08 when should I become an authorized user on my Father’s credit line(s)? When will I see the benefits of piggybacking? Can I do this now or do I need to wait until Fico 08 debuts?
Thanks!
@Nick,
According to the article at Marketwatch, FICO has said that they’ll apply this algorithm to FICO 08. I don’t know if you’d be processed in time (I’m not sure how long it takes to add authorized users), but since it’ll work for FICO 08, I’d say you might as well give it a shot.
I’m sure your dad is right that FICO’s change is based on statistics. Perhaps what is transmitted from parents with good credit ratings to their children is not wisdom in their use of credit cards, but a recognition of the importance of paying bills.
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