There's a provision in the FICO credit scoring process that allows a person who is added as an authorized user on someone else's credit card to essentially piggyback that person's credit activity, thus possibly improving his or her own credit score. Fair Isaac's FICO scores range from 300 to 850. The scores are calculated by a complex and confidential formula. Banks and other lenders rely on the scores as a means of determining the credit-worthiness of potential borrowers.
While it's one thing for family members to add spouses or children to their existing credit cards, some companies have begun cashing in on the process and are offering to sell the right to become an authorized user on the credit accounts of strangers. The owner of the credit card in these situations is paid a fee to allow others to sign on as authorized users, with the understanding that the newly authorized users won't actually use the card.
These companies are selling an opportunity to improve credit scores with a process sometimes known as credit renting. Fees can run as high as $3,000 for purchasing the right to be an authorized user, according to a report that ran in The Wall Street Journal. Some companies that sell these services claim they can raise credit scores as much as 200 points.
Beginning September 1, 2007, Fair Isaac Corp., the company that makes the FICO credit scores, is eliminating this piggybacking provision. "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 Mark Green, Fair Isaac chief executive.
Fair Isaac projects that one percent of consumers will be affected by the change. The number of affected people might be higher than Fair Isaac estimates. John Ulzheimer, president of educational services for Credit.com and a former manager at Equifax and Fair Isaac, estimates that as many as 30 percent of people with credit reports will be affected when Fair Isaac ends the beneficial use of piggybacking for calculating FICO scores.
The Federal Trade Commission is looking into the selling of piggybacking rights to determine whether the process violates the Credit Repair Organizations Act, a section of the Consumer Protection Act dedicated to ensuring that buyers of credit repair services receive information necessary to making an informed purchase, and to protect the public from deceptive practices in the area of credit repair.
In lieu of providing authorized access to accounts and credit cards, Fair Isaac recommends that people who want to provide a credit boost to family members consider giving family members joint access to accounts. By making a family member a joint owner of a bank account or a credit card, the family member benefits from the total credit history of the account or card.