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.
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.