Tidbits® - July 2007
Credit insight from Credit.com
Welcome to the Credit.com newsletter!
This free newsletter delivers easy-to-read tidbits about credit directly
from personal finance experts. In this issue, we're dissecting the
FICO credit score change. We'd love to hear from you! Send an email
to tidbits@credit.com with your credit questions or comments anytime!
Quick Tip
You can estimate the impact this FICO score change will have on your
credit standing online!
Use our credit score compass to quickly estimate what your credit
score will be when your authorized user accounts stop being counted.
Estimate your credit score in seconds today - http://www.credit.com/r/tidbits_compass/
FICO'S BIG NEWS
Will Your Credit Score Decrease?
Fair Isaac, the company that makes FICO credit scores, announced
a major change in June. Starting this fall, authorized user credit
card accounts will no longer be factored into the newest version
of FICO credit scores offered to lenders. This update will likely
cause major score changes for about 60 million consumers. Let's break
it down:
What are authorized user accounts?
Credit card issuers allow customers to add other people to an account
as "authorized users" without running a credit
check on this additional user. The authorized user can then use the
credit card and the account record will appear on his or her credit
report. The authorized user has no liability for the payments.
About 30% of people have authorized user accounts on their credit
reports.
How do authorized user accounts impact my FICO scores now?If you
are added as an authorized user on a credit card account that has
a low balance, a long history and no negative marks (like late payments)
then your score is benefiting from the account. Right now the FICO
score doesn't distinguish between authorized
user accounts and accounts where you are listed as the primary cardholder.
Why is FICO making this change?
FICO scores currently count authorized user accounts the same way
as credit card accounts where you are the primary user. This "loophole" allowed
consumers and credit repair companies to artificially inflate
credit scores by adding authorized users on an established credit
card account. FICO decided to stop counting authorized user accounts
in credit scores as a way to protect their business clients against
this type of
"piggybacking" fraud.
What will happen to my credit score?
If you have an authorized user account on your credit report, your
credit score will probably decrease when the change takes effect
this fall. You will lose any "points" you earned
from having the extra credit limit and years of credit history from
the authorized user account. Your credit score would only increase
if the authorized user account was hurting your credit with late
payments or a maxed out balance.
What can I do?
The first step is to check all three of your credit reports and credit
scores to see if you have authorized user accounts listed on your
files.
You can do this online here - https://www.credit.com/r/credit_report_monitoring/
If
so, you may want to switch your authorized user accounts to "joint
user" accounts by contacting the credit card issuer.
Or you might open a few credit cards of your own that have the same,
or higher, credit limits than the old authorized accounts - http://www.credit.com/r/ccard/
What will happen next time I apply for a loan?
Be very aware of your credit scores if you are planning on taking
out a loan or refinancing before the end of the year. You may
be offered higher rates or even turned down for a new account
if your credit scores drop because of the authorized user change.
How can I establish my credit after this change?
Being added to someone's credit card as an authorized user used to
be standard practice for establishing credit history. Parents
often do this to help their kids. This shortcut will no longer
work after the FICO change takes place at all three credit reporting
agencies. People who want to establish their credit
will need to open their own student credit card, secured credit card,
or subprime credit card instead -
http://www.credit.com/r/problem_credit/
You can read more about this FICO change online at Credit.com and
on CreditBloggers.com. If you have a question about what this announcement
means to you, send us an email at tidbits@credit.com.
Ask John
If you are an authorized user on a Capital One credit card, your
credit score could actually benefit from the FICO formula change.
Capital One doesn't accurately report credit limits to the bureaus,
a policy that can lead to credit score damage for cardholders by
making it appear that they are "maxing out"
their accounts.
See what John has to say about Capital One cards - http://www.credit.com/r/tidbits-vol22/
On the Blog
Do you think FICO should stop counting authorized user accounts in
your credit score?
Vote in our online poll and see what other readers have to say about
this announcement from Fair Isaac.
Share your opinion online today! - http://www.creditbloggers.com/2007/06/vote_do_you_thi.html
Quote of the Month
"What we call 'Progress' is the exchange of one nuisance for
another nuisance."
- Havelock Ellis
Tidbits® - July2007
About this newsletter
This information has been compiled and provided by Credit.com as
a service to the public. While our goal is to provide information
that will help consumers to manage their credit and debt, this information
should not be considered legal advice. Such advice must be specific
to the various circumstances of each person's situation, and the
general information provided on these pages should not be used as
a substitute for the advice of competent legal counsel.
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