Ask John: The Authorized User Loophole in FICO Scores has Been Closed
Much like the premiere of a great movie or the opening of a new Ikea store in your area, the anticipation in the lending world for the release of the new FICO score has been growing. And finally it’s here — sort of.
For a refresher on what FICO ’08 means to you, read our consumer alert here.
In May, Experian made the model that we’ve been calling “FICO ’08” commercially available to their clients. You may have heard about that already. What you may not have heard is that it’s only available in what is referred to as the “online” delivery method.
In this case, the term “online” does not have anything to do with the Internet. In the credit reporting world, an “online” credit report is when ONE credit report is delivered by a credit bureau in response to an application for credit by a consumer. An example of an online credit report is when you go to a car dealer or a mortgage broker and apply for a loan. Conversely, an “offline” credit report is one that is delivered in a batch with a large number of other credit reports — like when a lender buys a list to send preapproved credit card offers.
So now that I’ve thoroughly confused you, let me clarify a bit and say that if you apply for credit and the lender uses Experian, it’s possible that the score they use to make the decision will be the new FICO ’08 score, which might be considerably lower than your other FICO scores.
Credit.com performed research soon after FICO ’08 was announced by Fair Isaac last year and found that of those who identified themselves as being an authorized user, 61% were women. This makes it highly probable that any negative impact to the score will disproportionately affect female credit users.
TransUnion has pushed back their release of FICO ’08 until some time this summer. Equifax is still choosing to not make it available because of the VantageScore lawsuit filed by Fair Isaac in 2006. This means that for the foreseeable future, lenders buying credit reports from Equifax will still have no option but to use the older version of the FICO scores, which still consider authorized user accounts in the scores.
Incidentally, Experian is calling the new score the Experian Fair Isaac Risk Model v08. Clearly they couldn’t think of a longer name :)
If you have any questions about FICO ’08, authorized users, or anything credit-related please send John an email at CreditExperts@credit.com