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Fair Isaac to no longer rate Authorized User accounts - NEXT generation of FICO score manipulation

Fair Isaac Combats Credit Manipulation
June 5, 2007 - 12:47am

By J.W. ELPHINSTONE
AP Business Writer

NEW YORK (AP) - Fair Isaac Corp. said Tuesday the next version of its widely used FICO score will no longer consider certain types of credit card accounts, closing a loophole that allowed strangers to coattail on a cardholder’s good credit.

The new FICO score formula won’t include authorized user accounts _ users on credit cards who are not responsible for paying the balances but are approved to make purchases with the cards. Often, authorized users are family members of a cardholder, such as college students on their parents’ cards or spouses who have little or no credit of their own.

These types of accounts can improve a credit score if the primary cardholder kept low balances and paid the balance on time over a long period.

Fair Isaac plans to introduce the new scoring methodology in September to one of the three major credit reporting agencies: Equifax Inc., Experian Information Solutions Inc. or TransUnion LLC. The other two reporting agencies will receive the update some time in 2008, Fair Isaac said.

The company’s action comes after lenders and industry officials raised concerns over credit renting, a little-known but growing practice that allows people with bad credit to piggyback on strong payment histories of credit card holders.

The person with a low credit score pays a fee to rent a spot as an authorized user on a stranger’s account. The payment for the person allowing the piggybacking on his or her credit history depends on the quality of his or her credit line.

With an augmented score, consumers are able to receive lower interest rates on mortgages, car loans or personal loans. Typically, a higher credit score translates into a lower interest rate on a loan. Although federal authorities have yet to rule on the legality of the practice, lenders worry that if it becomes commonplace, they may unknowingly take on riskier borrowers.

For Fair Isaac, changing its score meant protecting the integrity of its credit scoring system. Ninety percent of the largest U.S. banks base their loan decisions on FICO scores, according to the company.

“We will do whatever it takes to protect the reliability and accuracy of FICO credit scores for lenders, and ensure lenders can continue to use FICO scores with confidence when making their most important customer decisions,” said Fair Isaac Chief Executive Dr. Mark Greene.

Fair Isaac said that the new scoring formula will better predict consumer payment behavior and will require minimal changes to lenders’ operating systems. The FICO score will retain the same scoring range _ 300 to 850.

But those college students and spouses who rely on authorized user accounts to build their credit stand to lose that benefit.

Tom Quinn, Fair Isaac’s vice president of scoring solutions, said it was to challenge to find a solution addressing the credit borrowing problem because there was no way to distinguish between family members and strangers due to privacy laws and the Fair Credit Reporting Act.

(Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.)

Just a few days ago I added Authorized User accounts to my services because some of my clients kept looking into purchasing AU accounts from companies who didn’t appear to be very reputable. 

One of my clients had alerted me to Credit score scheme raises fraud worries

… Asked for comment on the rental of trade lines to artificially inflate mortgage applicants’ FICO scores, Steven Baker, Midwest director for the Federal Trade Commission, would say only: “We are aware of it. We are concerned about it, and we are looking into it.”

Donald Girard, spokesman for Experian, one of the three national credit repositories, said “these are nothing more than new credit repair scams.” However, he added, Experian “does support authorized user relationships such as … parents helping a son or daughter establish credit with their first credit card.”

Fair Isaac Corp., developer of the FICO score, said that the “inappropriate use” of trade lines is an industrywide issue, and that the company is in discussions with the FTC.

Isn’t it astounding how concerned they all are when consumers INCREASE their scores, but they do NOTHING about the artificially LOW credit scores due to Capital One’s refusal to report the credit limits?

Nothing could document better that Fair Isaac and the regulators WANT consumers to have the lowest scores possible so that they are forced into unconscionable subprime loans.

Anything to assist the banksters with the exploitation of the working people!

As I started looking into the AU accounts for sale, I noticed that no charge accounts are offered.  That’s because Authorized Users can USE charge accounts to place phone or online orders and probably even in stores as soon as they get the account number from the credit report.  Unlike with credit cards, no expiration date or the 3 digit number is required.

So, I’m already ahead of the game.

I might just make a few select clients JOINT account holders for some low limit cards.  Obviously, it will cost MUCH MORE than becoming an AU because the risk is much greater that my account will be used and once it HAS been used, I have to close it.  And of course I have to pay the balance that’s owed.  It’s going to be a lot more risk and a lot more work to monitor the accounts.

I’d HATE to lose an account opened 15 years ago.

But, in the spirit of documenting that FICO scores are inherently corrupt, I decided to offer these services.  And this may well become a nice supplemental income to senior citizens on a fixed income.  They are most likely to not be hurt too much when an old account has to be closed.  Preferably they do not add a joint account holder to at least one old account.  It’s risky, but beats selling a kidney.

I also found it very interesting that Fair Isaac and Experian stated that children SHOULD be able to reap the benefits of being AUs on their parents’ accounts, but apparently it’s wrong when people buy these accounts.  That’s of course contrary to everything I believe in, as I’m very much into equal opportunities.  Just because a kid’s parents are well to do he deserves higher FICO scores and to pay less interest, rent, insurance, etc.?

Of course the wealthy will always have unfair advantages, but why shouldn’t the disadvantaged at least be able to purchase those same benefits?

Many kids will now be added as joint account holders, many parents’ credit will eventually be ruined by their kids.  And many of the consumers who weren’t born into wealthy families, orphans and otherwise disadvantaged will hand over more of their cash to the corporations and have fewer opportunities.