Thank you to Credit Coach Mike Payne for contributing this special content to the Bryan Ellis Real Estate Letter.
My #1 rated credit score-boosting secret is the AUTHORIZED USER score-boosting strategy (aka “piggy-backing”). “Authorized User” (AU) is the practice of adding a person who has credit challenges as an “authorized user” to the account of a person who has a strong credit history. The theoretical (and usually practical) result is that the positive credit history of the account owner is then additionally reported to the credit files of the credit-challenged authorized user, bringing improvements in the authorized user’s credit rating.
Here’s an example of how the Authorized User strategy works: Imagine that your brother has just gone through an ugly divorce and now has a bad credit rating to go along with it. You have an excellent credit rating and you want to help him get re-established, so you add him as an “Authorized User” to your Visa credit card account. In return, Visa sends you a credit card with your brother’s name on it. You then destroy that credit card, because neither your brother nor anyone else is ever going to use it. However, you continue to use your Visa credit card just as you always have, and you pay your bills reliably. Each month, Visa reports the activity on that account to the credit bureaus, but now, your activity is reported to both your credit history and your brother’s credit history. Voila! Your impressive credit history has just helped to improve your brother’s difficult credit circumstance.
Now, if the roles are reversed, and it’s you that need help improving your credit, you’ve got a great strategy for doing so!
- There is no risk to the person adding you as an AU. After all, you’ll never actually receive access to use the credit account. (In the example above, the credit-challenged brother never receives the credit card issued to him as an “Authorized User”.)
- Authorized User (aka “credit sharing” or “piggy-backing”) is listed as an accredited practice under the Federal Trade Commission’s Equal Credit Opportunity Act. See regulation ‘B’.
- You must trust the person agreeing to add you to one or more credit card accounts. If that person (who has maintained excellent credit cards for many years) defaults, all bad marks spill over to your credit file as well.
- The “better” the card holder’s (credit card) account history, the better the benefit to you. Members have reported their scores jumping 25-50 points per AU account! Results vary.
Isn’t “Authorized User” DEAD As A Credit Improvement Strategy?
That’s what they want you to believe. Who are “they”? “They” are mortgage bankers and Fair, Isaac (the company who decides how your credit history translates into a credit score) who fired up their powerful PR departments a few years ago with the intent to destroy Authorized User.
Truth is, sleazy credit (dis)repair companies pitched and sold AU accounts as if candy to babies. From $200 /account to more than $5,000 /“package,” people opened their wallets to buy their way into “Authorized User” status en masse.
Mortgage bankers, we’re told, suddenly questioned to whom they were giving money to buy houses. In turn, Fair, Isaac, responding to bankers’ outrage, announced a proposed credit scoring algorithm update code-named “FICO 08” that would zap all AU accounts from a borrower’s credit report.
To Fair, Isaac’s surprise, resounding public outcry from lawyers & consumer advocacy groups fired back. Legal experts warned Fair, Isaac & Company that ignoring information regarding spouses on authorized credit lines could be a violation of the Equal Credit Opportunity Act.
Fair, Isaac & Company wisely rescinded, stating it would allow Authorized Users while rejecting “abusive” behavior. Which suggests, Fair Isaac’s FICO ’08 will:
1. Count (only) a limited number of authorized-user accounts and ignore the rest.
2. Overlook AU accounts allegedly purchased. (Hint: How many AUs do you believe legitimate credit cards should/might carry?)
So the conclusion to be drawn is: the Authorized User strategy is still effective, but it must be implemented wisely.
Note To Potential Mortgage Borrowers:
Before you run out & load up on Authorized User accounts to improve credit for buying a house, please listen carefully: most mortgage bankers “hand underwrite” and will (most likely) ignore any AU accounts!
Therefore, you might consider utilizing the AU score-boosting secret as a “gateway” strategy. That is, apply & get approved for your own credit (after) adding one or more AU accounts. You then can season those credit accounts, building your own good credit file.
“The Future of Authorized User”
Before I go, please listen carefully: AU will not be around forever. Already, the BIG 3 want to destroy Authorized User once and for all. What you may not know is that the big 3 credit reporting agencies have been trying to put Fair Isaac (aka creators of FICO) out of business with their own joint creation named Vantage Score. Big 3 claims Vantage Score legally allows them to ignore AUs altogether.
For more help improving your credit scores, go now to http://www.FixMyUglyCredit.com
Disclaimer: Credit Coach Mike Payne is not an attorney. This article is for informational purposes and is not intended as legal or other professional advice. Seek the guidance of a licensed professional.