An Additional Step to Credit Repairby Steve Cypher on Sunday, February 24th, 2013
While a high risk car loan can help consumers reestablish their auto credit there is something else they can do to help accelerate their credit repair efforts although it is not quite as effective as it once was
What we know
Consumers with poor credit should know that there is at least one step they can take in addition to an auto loan to improve their FICO scores.
At Auto Credit Express we’re familiar with this because we’ve spent the past twenty years helping car buyers with questionable credit find those new car dealers that can offer them their best chances for approved car loans.
Here’s what it’s all about:
Become an authorized user
An authorized user is someone in addition to the account holder who can legally be added to a credit card account in a practice known as “piggybacking.”
In this case by adding someone with less than perfect credit as an authorized user to the account of someone with excellent FICO scores, a low account balance and a high credit limit, can improve the credit history and credit scores of the authorized user in at least two ways:
1. For one, the good account activity will begin appearing on the authorized user’s credit reports.
2. Secondly, the additional credit line will increase the authorized user’s available credit while, at the same time, lowering their debt ratio.
How it is done
Here’s how it’s typically done: Credit repair companies regularly solicit credit card account holders that have high credit scores. These companies offer to pay these account holders for the right to add authorized users to their credit card accounts.
It should be pointed out that authorized users cannot use the credit accounts or gain access to any of the personal or financial information they contain. Once they’ve been assigned to these accounts, however, authorized users can take advantage of the positive credit activity to improve their own credit scores.
Reaction of the credit bureaus
Needless to say, this practice attracted the attention of FICO as well as the three credit bureaus. The result was “FICO 08″ – a new scoring model designed to completely ignore authorized user accounts when calculating credit scores.
But according to FICO, they were informed by the government that ignoring authorized users would obstruct FICO’s compliance with the Equal Credit Opportunity Act, Regulation B – a rule that requires lenders to consider shared accounts of spouses when determining a married person’s credit risk. By ignoring these accounts, FICO 08 would be in violation of this regulation.
According to FICO, it has since adjusted FICO 08′s formula to include related authorized users while reducing the impact of piggybacking by those not related to account holders. But as it stands now, authorized users of all types continue to be included in FICO’s formula.
Problems with account piggybacking
There is a possible downside to doing this. If the account holder continues to pay on time, the credit scores of any authorized users will continue to
reflect this positive activity. But if there are any late or missed payments, the FICO scores of both the account holder as well as any authorized users will decline.
The Bottom Line
Becoming an authorized user on a credit card account can help you raise your credit scores. But if you decide to take this step, just be sure you can handle the possible negative effects if the account holder’s payment habits suddenly change.
Another thing to keep in mind: Auto Credit Express matches applicants with damaged auto credit with dealers that can offer them their best opportunities for car loan approvals.
So if you’re ready to establish your car credit, you can begin now by filling out our online car loans application.