San Diego, CA. - Piggybacking credit is the term defining the practice of an individual with poor credit and low credit score is signed on as an 'authorized user' to an account of an individual with good credit. The intended result is an improved credit score, usually within three to four weeks. Sometimes adding an authorized user is within a family and usually done for convenience.
For those who are piggybacking, it can be expensive,
very expensive, to rent someone else's good name and
credit rating. The Associated Press recently reported
about an individual with a low credit rating, "which he
said was marred by two forgotten cell phone bills and
identity theft," the 37-year-old real estate agent paid
$1,800 to an Internet-based company to bump up his score
almost overnight.
On the flip side of this coin the same AP story reported
about "a retired Army officer in Glendale, Calif., pulls
in more than $2,500 a month by lending out 19 credit
card spots on two old Citibank cards with strong payment
histories." His FICO score is above 800 on the scale of
300 to 850." A credit card spot is the term for an
authorized user, who gets a "spot" to ride piggyback on
the good credit score of another.
For the owner of the good credit, the risk is all on
their side according to Maxine Sweet, VP at Experian.
She commented "For the authorized user, the implications
are positive, if you pay the bill on time. The account
becomes part of the authorized user's credit history, so
it can help them by adding positive information.
The cardholders with the good credit do need to worry
about the authorized user making charges on the account
that you can't afford to pay. An authorized user can use
the account, but they are not responsible for making
payments. That is entirely up to owner of the account.
Until recently, late payments on the account appeared on
both your credit report and the authorized user's credit
report, hurting both parties. The good news for the
authorized user is that Experian changed its processes
so that no negative information is reported on an
authorized user's credit report. They can build a
positive credit history without risk.
The cardholder with the good credit, on the other hand,
still will have any negative information about that
account in their report. Essentially, you have all of
the risk when you allow someone to be an authorized user
on one of your accounts," Sweet concluded.
Now, MyFICO has added a new wrinkle after lenders
expressed concern the practice of piggybacking could
lead to greater default risks. In early June MyFICO
issued this press release:
Fair Isaac Moves to Protect Lenders from Fraudulent
Manipulation of Authorized User Credit Card Accounts.
Company's newest FICO scoring model will ignore
authorized user accounts when calculating Classic FICO
credit risk scores.
June 5, 2007 - (Minneapolis, Minnesota, USA) - Fair
Isaac Corporation (NYSE:FIC) today announced that it
will adjust its FICO scoring formula to ensure the
continued reliability and predictive power of FICO
scores. This action is intended to protect lenders and
FICO scores from abuse of authorized user credit card
accounts by a new kind of credit repair service that
sells consumer credit card histories to credit
applicants in order to purposefully misrepresent the
applicants' own credit history to lenders and other
businesses.
The adjustment removes authorized user accounts from
consideration by the scoring model in FICO 08, the
newest version of the Classic FICO credit score which
Fair Isaac expects to become available to lenders
starting in September.
"We will do whatever it takes to protect the reliability
and accuracy of FICO credit scores for lenders, and to
ensure lenders can continue to use FICO scores with
confidence when making their most important customer
decisions," said Dr. Mark Greene, CEO of Fair Isaac. "We
will continue working with lenders, regulators and
others in the credit reporting industry to end deceptive
practices that fraudulently misrepresent consumer credit
histories for profit."
An authorized user is a person permitted by a credit
account holder to use an account, typically a family
member who is managing credit for the first time. Used
legitimately, authorized user account information has
helped both lenders and consumers by enabling lenders to
use FICO scores when making credit decisions for
consumers who are starting to establish a credit
history. Fair Isaac's research indicates that the next
version of its FICO scoring formula will deliver
increased predictive power without considering
authorized user accounts.
Fair Isaac will work closely with lenders to help them
implement and benefit from the FICO 08 score as it
becomes available. As the company announced previously,
lenders will be able to use the new version of FICO
scores with minimal changes to their own operating
systems. To make lender adoption easier and faster, the
new scoring model will retain the same scoring range,
score reason codes, minimum scoring criteria, inquiry
treatment, and related model parameters as previous
versions of the FICO formula. (End of MyFICO release.)
The AP story also reported the viewpoint of the National
Mortgage Association. "Ginny Ferguson, a mortgage broker
in Pleasanton, Calif., and a credit expert for the
National Association of Mortgage Brokers, considers the
practice mortgage fraud, and the trade organization is
about to release a policy statement against it.
"These companies are encouraging consumers to commit
fraud. On a standard home loan, there's a clause that
says the consumer is not omitting pertinent facts that
could impact his or her ability to repay the loan,"
Ferguson said."
The AP story also got a comment from the FTC. "So far,
federal authorities have yet to make a ruling on the
practice. "What I've gathered from attorneys here is
that it appears to be legal" technically, said FTC
spokesman Frank Dorman. "However, the agency is not
saying that it is legal."
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