Fair Isaac to End Credit Piggybacking Practice

Fair Isaac, the company behind the widely-used Fico score, has revealed that come September, people who are added as authorized users on existing credit cards will not benefit from past credit history associated with those cards.

The move comes after research revealed that credit repair companies were exploiting the loophole, allowing borrowers with bad credit to become authorized users on credit cards with a solid payment history to raise their credit score.

The practice is referred to as “credit piggybacking”, and the way it works is rather simple.

A borrower with poor credit contacts a company such as Seasonedtrades.com or Instantcreditbuilders.com who offers the client the ability to become an authorized user on a credit card account with a solid payment history for an agreed upon fee.

The company then finds a match for the client, selecting a consumer from their database who was agreed to add authorized users onto their credit card in exchange for a sizable payment.

As a result, the client who was added as an authorized user would see their credit score boosted, despite the fact that they had nothing to do with the payment history on the credit card.

Pricing varied based on how long a card was open, what the limit was, and what type of account it was. Some accounts were said to have as many as 100 authorized users per credit card!

The issue wasn’t tackled earlier because it wasn’t a known problem until just recently, when many of these “credit repair” companies went online and made their shady practices accessible to the masses.

The new Fair Isaac scoring model, referred to as Fico 08, should be rolled out in September to one of the three credit bureaus, and to the other two next year as a means to strengthen lending practices.

Ron Totaro, Vice President of global scoring solutions at Fair Isaac mentioned that joint users would continue to benefit from associated credit history because both are responsible for the debt, whereas authorized users are not.

Fair Isaac estimated that only about 1% of consumers will be affected by the new scoring adjustment, and that lenders will have an easier time evaluating credit once this issue is resolved.

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