Raise your Credit Score as an Authorized Userby Steve Cypher on Saturday, March 26th, 2011
Give your credit score a boost and possibly qualify for a better interest rate before applying for a bad credit auto loan
Getting back in the credit game
If you have poor to bad credit you may be wondering what you can do to raise your credit scores.
During the past twenty years, we’ve also heard this question more than a few times here at Auto Credit Express, where our commitment to customers with poor credit includes our web site. Featuring a bad credit car loan application, it’s something we felt was needed after seeing the disappointment and anxiety on the faces of poor credit customers after they visit a dealer that doesn’t offer second chance auto loans.
And while these people can usually visit a buy here pay here dealer, this won’t help their auto credit problems since these types of dealers don’t report loans or payments to the credit bureaus and their loans often end in repossession.
Since even bad credit lenders take your credit score into consideration, you might want to think about doing something that can add a few points to it before you apply for a loan: become an authorized user on someone else’s credit card account.
An authorized user is someone other than the account holder assigned to a credit card account. The practice of adding someone in this manner is known as “piggybacking.” By becoming an authorized user on an account where the account holder has a high credit score, you can improve your FICO scores in a couple of ways.
To begin with, the additional positive credit activity will appear on your credit report and will help your credit scores. Secondly, this new credit line will also increase your available credit and, at the same time, lower your debt ratio. This will further raise your credit scores.
Helping credit repair
In some cases, companies that specialize in credit repair will solicit credit card account holders with high credit scores, offering to pay account holders for their permission to add authorized users. The company will then assign a client to one or more these accounts in order to raise their client’s credit scores.
Authorized users are not able to use these accounts and they are unable to access to any of the personal or financial information these accounts contain. By being on the account, they can share the regular payment history of the account holder, thus improving their credit scores as well.
Credit bureaus response
As this practice became more common, it began to attract the notice of FICO as well as the three major credit bureaus – Experian, TransUnion and Equifax. In response, a new credit-scoring model was created called “FICO 08”, which contained a formula designed to ignore authorized user accounts when calculating a credit score.
The new model, however, ran into a fairly big snag. According to FICO, they were informed by the government that ignoring authorized users would block the company’s compliance with Federal Reserve Regulation B, which requires lenders to consider shared the accounts of spouses when considering a married person’s credit risk. If FICO’s new scoring model ignored this, it would be in violation of the regulation.
FICO now says it has a formula that includes authorized user accounts in Fico 08 while, at the same time, reducing the impact of piggybacking. But the fact is that authorized users are now a part of FICO’s current formula – although it may not carry as much weight as in the past.
If you decide to become an authorized user and the account appears on your credit report, there can be a downside. If the account holder continues to pay like clockwork, your credit scores will likely continue to reflect this positive activity. But if, for some reason, the account holder begins to fall behind and even misses one payment or more, your credit scores could also take a serious hit.
The Bottom Line
When all is said and done, you need to decide for yourself how to go about repairing your credit and improving your credit scores. If you choose to be an authorized user, you need to be sure that you can handle the possible downside if the account holder suddenly changes paying habits.
You can also apply for a bad credit auto loan at Auto Credit Express where we specialize in placing customers with bad credit with dealers that can help them. These dealers are knowledgeable and work with a large number of lenders to give you your best chance at an approval for a bad credit car loan.
So if you are serious about getting your car credit back on track, you can begin by filling out our bad credit auto loan application now.