Thursday, November 21, 2024

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 topic.

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, Evan Hendricks, 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 credit bureaus.

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.

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