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Authorized user accounts have long been the subject of debate in credit repair circles. These accounts can boost your credit scores, but is it fraud? A credit repair expert provides excellent insight into the recent resolution of this controversial issue.
Common Practice
It is a common practice for parents to give a child a credit card. It's good for emergencies and handy for everything from summer camp to college life. It is also common for one spouse to make the other spouse an additional card member.
A Little Software Bug
None of these practices are even slightly questionable. Additional card member accounts didn't attract the attention of lenders or Fair Isaac Corporation, the creator of the credit-scoring model used by lenders when they make credit decisions, until they noticed an interesting bug in the credit-scoring model which was to spawn a questionable little sub-business in the credit repair industry.
A Cool Credit Repair Trick
It seems that as soon as the new account appeared on the credit report of the beneficiary their credit score would jump. In other words they were inheriting the credit history of the card from the donor. In the case where the donor had excellent credit the beneficiary discovered their own credit score jumping significantly, often over one hundred points, a cool little credit repair trick, but not what Fair Isaac really had in mind.
Word Spread Quickly
Well, the word quickly spread. And as always happens, creative entrepreneurs thought up a way to package this small credit repair miracle and sell it to absolutely anyone who had the money and desire to give their credit score a quick, albeit undeserved boost. And it is this undeserved issue that became the real problem.
FICO in our Life
In 1989 Fair Isaac Corporation first made their FICO credit scores available to lenders. And in 1995 the mortgage lending giants, Fannie-Mae and Freddie-Mac made FICO scores a part of their mortgage underwriting consideration. Since that time lenders have become virtually dependant on Fair Isaac's scoring model, and the credit repair services began to focus on these powerful little numbers.
Score Distortion
The reliability of these important numbers is essential to good decisions. If something were to threaten the validity of the FICO score undeserving borrowers would be able to obtain loans they did not deserve. Lenders making these loans would be in jeopardy of increasing default rates and potentially disastrous losses.
Credit Repair, or is it?
So you can image the concern that lenders felt as they discovered that pseudo credit repair companies were popping up on the Internet selling these accounts to anyone with the money to pay. In response, Fair Isaac went to work to modify their computer model to block the benefit of these accounts, and to end to the distortion being caused by credit repair card sellers. And so they rewrote the model and introduced it as FICO '07. But there was a problem.
The Credit Repair Battle Continues
As much as lenders wanted to eliminate the score distortion caused by authorized user accounts, they were unable to implement FICO '07. It seems that there is a paragraph in the Equal Credit Opportunity Act (ECOA) that states that, “when lenders assess a spouse's credit risk they are required by law to consider the credit history of accounts which both spouses are permitted to use.”
Back to the Drawing Board
This little directive stopped FICO '07 in its tracks and sent Fair Isaac back to the drawing board. For those of us in the credit repair business, we were amused to see the fanfare amongst the brokers of these authorized user cards that trumpeted FICO '07 as “illegal”, and of course continued to sell their questionable credit repair product to the public. Their celebration, however, was short lived.
Credit Repair Card Brokers Say Goodbye
On July 31, 2008, Fair Isaac announced their final solution. They have managed to create a way to block questionable authorized user accounts from inheriting the score benefit of the donor without blocking those of spouses and family members. So finally the death blow was dealt against the shadowy credit repair businesses selling their quick fixes.
Those Amazing Brainiacs
The exact language of the press release reads, “We have developed technology that will reduce any impact on the FICO 08 score from intentional tampering, while allowing the scores of spouses and other genuine authorized users to benefit from their shared credit experience.” How this works, I can't say, but my hat is off to the brainiacs at Fair Isaac.
Credit Repair the Right Way
Intentional distortion of the validity of credit scores was good for no one. Intelligent credit repair never requires questionable practices. There have always been many legal and powerful ways to boost your credit score, quickly and effectively. A well-planned approach to credit repair has always produced real and lasting results that endure and truly reflect your own credit worthiness. Do it right, and do it for real.
Copyright © 2008 James W. Kemish. All Content. All Rights Reserved.
Fair Isaac Corp. has announced a modification of their software which will block the credit score benefits of authorized user accounts. A nationally recognized credit repair expert discusses the news and the impact it may have on your life.
Questionable Credit Repair Practices
A small sub-set of the credit repair industry has been operating in a gray area of the law by selling authorized user accounts to consumers. Many credit repair customers have been willing to pay significant amounts of money for these accounts, and the credit score benefit that comes with them. According to the Fair Isaac July 31, 2008 press release, those days are officially over.
A Brief History
The FICO credit scoring model considers, among other things, the payment history of your credit cards as an indicator of your credit worthiness. Until now, FICO also applied the payment history of authorized user accounts in their calculation of the score of the authorized user - an interesting point as these accounts reflect the credit worthiness of the primary card holder, rather than the authorized user.
The Birth of Credit Repair Card Sales
A number of credit repair companies picked up on this loophole and began to sell authorized card memberships to people wanting a quick score boost. Soon lenders caught on and decided to fight back; justifiably so, as these accounts artificially skewed the credit scores of borrowers, making good credit decisions unreliable.
The End is in Sight
Fair Isaac Corp. has now taken steps to preserve the integrity of the FICO score by eliminating the score benefit of authorized user accounts sold by so-called credit repair companies that chose to operate in this questionable market. If you have considered buying authorized user accounts from one of these credit repair operations to get a quick bump in your credit score, forget it.
The End of the Credit Repair Gray Market
The new, updated, FICO 08 release includes a fancy sorting algorithm which reportedly will allow legitimate authorized card holders, such as spouses, to continue to receive the score benefit, while effectively blocking cards that were sold in the credit repair gray market. Spouses are clearly safe, and based on the language of the July 31, 2008 press release, so, we believe, are child accounts.
How Does the Magic Work?
If I had to guess, I'd say that Fair Isaac tests for a relationship between the primary card holder and the member user. I'd also guess that they are testing for the number of member users per primary account. In other words, primary accounts that have more than one or two authorized users will be blocked for sure. This in itself would eliminate the majority of the gray market accounts because most of these accounts were sold multiple times.
Make Your Credit Repair Plans
Fair Isaac's new approach to the authorized user account problem is very even-handed and should provide comfort to spouse and child card holders, as they should be able to continue to enjoy the score benefit of their accounts. But if you are making a credit repair effort and have purchased authorized user cards and are counting on them to maintain your score, it's time to make other plans.
Finding the Right Solution
Ethical credit repair is also the most effective. Truly successful credit repair is about a genuine reshaping of your credit. You might have been able to artificially increase your credit score by purchasing an authorized card membership, but this was never an effective long term solution.
Credit Repair Done Right
If you are in a credit repair program and want to improve your credit scores, there is an effective and reliable way to do so. Build your own credit! If your credit scores are below the level that will allow you to get unsecured credit cards, get secured cards. Secured cards are cost effective, the accounts are yours, and before long you will be enjoying improved credit scores. That's the right approach to credit repair.
Copyright © 2008 James W. Kemish. All Content. All Rights Reserved.