Making Sense of Authorized Users

An authorized user is someone other than the account holder who can be added to a credit card account in a legal practice called “piggybacking.” 

 

If you have poor credit, having yourself added as an authorized user to the account of someone with a high credit score, low account balance and high credit limit, can improve your credit scores in a couple of ways. To begin with, the positive credit activity will begin appearing on your credit reports, making a positive impact on your FICO scores.Additionally, the new credit line will increase your available credit and, at the same time, lower your debt ratio which can further improve your credit scores.

Credit bureau reaction

This practice attracted the attention of FICO as well as the three credit bureaus and resulted in the “FICO 08″ scoring model which was designed to ignore authorized user accounts when calculating credit scores. But FICO 08 also caused a problem. According to FICO, the government informed them that ignoring authorized users would obstruct FICO’s compliance with the Equal Credit Opportunity Act, Regulation B – a rule that requires lenders to consider shared accounts of spouses when determining a married person’s credit risk. By ignoring these accounts, FICO 08 would be in violation of Regulation B.

According to FICO, it has since adjusted the formula of FICO 08 to include authorized users while reducing the impact of piggybacking. This means that as it now stands, authorized users continue to be included in FICO’s formula.

Piggybacking issues

If, for some reason, the account holder is either late or misses one or more payments, the credit scores of the authorized user will also be affected.

Experian announces its Extended ViewSM score

Costa Mesa, Calif., June 13, 2012 — Experian^®, the leading global information services company, announced its Extended View^SM score .  Extended View is a highly-predictive score designed to assess the creditworthiness of consumers who have little or no traditional credit history--typically referred to as underbanked or underserved consumers.

Extended View is a proprietary credit score developed by Experian that includes three unique data sources: Experian’s credit data, rental information and public record data.  This product provides a comprehensive view of a consumer’s payment behavior.

Student Loan Update

Easier IBR Enrollment Process in the Works Last week, the White House issued a Presidential Memorandum that will make it much easier for federal student loan borrowers to enroll in Income-Based Repayment (IBR). By the end of September, you'll be able to electronically transfer your IRS income data directly into the IBR application and submit it online. But people need to know about IBR before they can benefit from this major improvement to a process that can currently take weeks or even months. (For more on the Obama Administration's planned IBR improvements, see the White House's fact sheet.) In a statement, TICAS praised the planned simplification and said it should also be used to verify annual income information for those already in IBR. We also called on the Obama Administration to do much more to tell struggling borrowers about IBR and how it could make their payments more manageable. According to news reports, about 700,000 people are enrolled in IBR. Meanwhile, the Federal Reserve Bank of New York found that more than five million people are past due on at least one student loan. If you know people who might benefit from IBR, help spread the word and tell a friend! TICAS is an independent, nonprofit, nonpartisan organization, and we developed the policy framework that became the basis for IBR. The generous support of people like you helps make IBRinfo.org and our other work possible. Please consider a tax-deductible donation to support our ongoing efforts to make college more affordable and reduce the burden of student debt.

Does it help to spread your debt across all your cards?

The short answer: Sometimes.

The long answer: The FICO scoring model considers utilization by looking at your balances divided by the credit limits on all your cards, as well as the single highest utilization on your credit cards. It's possible for two consumers owing the same amounts and having the same credit limits to get different credit scores if one puts a large balance on a card with a low limit, causing that card to have a high single utilization compared to the other consumer.

Spreading your debt across multiple cards generally won't help your credit score, unless putting all your charges on one card would put that card close to being maxed out.
Having one credit card with a low credit limit could harm your score if you charge up a high balance on it, but your score could also suffer if you charge high balances on all your cards. People with balances on a number of cards are more likely to mismanage their credit. As such, there can be an impact to your score of having a large number of credit cards that have high balances on them.

Good credit management will save you money and help you build a better credit score.