New FICO Score is bad news for millions of Americans
Mark Enderle is owner of Preferred Credit Solutions and founder of
Improve-Your-Credit-Score-Now.com. Mark provides personalized credit
education and advice to consumers who wish to understand everything on their
credit reports, how these items affect their credit scores, and what specific
steps to take to improve their credit scores as quickly as possible.
I saw your lead
in the DebtSmart Email Newsletter regarding FICO 08 and how it will impact
people that are either already authorized users or planning on becoming an
authorized user. I thought you might like some additional information on this
After the news broke that authorized user
accounts will be removed from consideration in the new FICO 08 score, I have
spoken with Fair Isaac, Experian,
Gerri Detweiler, and Julie Fergerson of Debix about this development. I have
also read everything I could find on the topic. One credit insider states that
25% of the 165 million Americans with credit scores have authorized user
accounts. This means that over 40 million Americans could be negatively
affected. Also, he states that 1% of the people that now have a credit score
will lose that score if/when FICO 08 is adopted.
A tech person at Fair Isaac stated there will be
no code set up for grandfathering in people already on authorized user accounts.
In other words, positive credit consumers have been receiving will disappear
if/when the bureaus adopt 08. I then spoke with
Evan Hendricks, who did put into his written testimony to the House
Financial Services Committee in June a paragraph alerting this committee to this
pending authorized user change in the credit scoring model. Experian was totally
non-committal as to if or when they would even adopt this model. The other two
CRAs (Equifax & TransUnion) would not even return my calls. In speaking with
Gerri Detweiler and Julie Fergerson, they both believe that it may be quite
awhile before the bureaus adopt 08.
Here are the reasons I believe it may be a long
time in being adopted:
The CRAs are still trying like crazy to get their
Vantage Score adopted by the major players so they are not so inclined to buy
another scoring model from Fair Isaac. Until the big boys in the secondary
market change their underwriting guidelines, it is not likely that major
creditors or CRAs will change. This includes Fannie Mae and Freddie Mac, along
with Sallie Mae, FHA, VA, and the major wholesale lenders that sell their paper
on the secondary market.
Vantage Scores do not make a provision for giving
any credit to authorized users whatsoever.
Classic FICO scores have been out there forever,
and yet they are still the standard, even though Fair Isaac has pushed the
NextGen (next generation) scoring model, and the CRAs have been pushing the
Vantage Score since last April.
So, everyone needs to be aware that FICO 08 is
out there and how it might affect their credit score in regards to authorized
user accounts. A Fair Isaac spokesperson has stated that she believes it will be
adopted and used by all 3 bureaus within one year of its projected roll out date
this September. However, as previously mentioned there are many knowledgeable
people inside the credit industry that feel it will be a very long time before
major creditors start using FICO 08, even if it is an option from the 3 major
And what should you do if you have an authorized
user account and really need the credit points it is adding to your score? Look
into simply being changed from an authorized user to a co-applicant on the same
account. Then if FICO 08 is adopted, your score will not be negatively affected
at all. (Remember, as a co-applicant, you are jointly liable for paying this
account. As an authorized user, you are not.)
And what should you do if you are thinking of
becoming an authorized user? If you really need a credit score boost and have a
parent, other relative, or good friend that agrees to put you on a trade line in
good standing, I would still consider doing it. However, you need to know that
you may eventually lose the points you will gain, so take other measures to
build credit in your own name, so if you do lose credit for your authorized user
account, you won’t be hurt nearly as bad.