Authorized Users and Bad Credit Auto Loans

In addition to making regular payments on a bad credit auto loan you can become an authorized user on a credit card to give your credit score a boost

Putting you and your credit back on track

Rebuilding your credit can be difficult. At Auto Credit Express we’ve spent the last 20 years working with consumers who have bad credit by directing them to our bad credit car loan online application where they can finance a vehicle through our nationwide network of dealers that specialize in second chance auto loans. Unlike tote the note dealers, the lenders these dealers work with report to the credit bureaus and can help you reestablish your car credit and raise your FICO scores.

While working with credit-challenged consumers, we have come to believe that one of the keys to successfully reestablishing your credit is an understanding of the credit repair process. For many people emerging from bankruptcy, or just trying to raise their credit scores in any way possible, the idea of repairing their credit quickly and raising their FICO scores through a credit repair agency can be very appealing. But they need to be careful of the methods these companies use, since practices such as applying for an EIN are actually illegal.

One particular method is legal and, while it won’t help you reestablish your auto credit, being added as an authorized user on a credit card account can raise your credit scores in a very short time.

An authorized user

An authorized user is someone assigned to a credit card account that is someone other than the account holder. Being assigned as a user to a credit card account when the account holder has a high credit score will also raise the FICO scores of the authorized user in a couple of ways.

The first advantage of what is called “piggybacking” on the account of someone who pays like clockwork every month is that this activity will appear on your own credit report and will raise your credit score. The second advantage is that the increase in available credit as well as the increase in your own credit “ceiling” will also raise your credit score.

How it is done

In many cases, companies that specialized in credit rebuilding will solicit credit card account holders that have high credit scores, offering to pay the account holders for the use of their accounts for the purpose of adding authorized users. The company will then assign their clients to these accounts to raise their credit scores.

These authorized users are not able to charge anything to these accounts and in no way do they have access to any information these accounts contain. Simply by being on the account, they are able to take advantage of the regular payment history of the original account holder and this positive credit history is also reflected in the authorized user’s credit report, thus raising that person’s credit score as well.

How the credit bureaus responded

As this practice became more prevalent, it began to attract the notice of FICO (the company that created the original credit scoring formula) as well as Experian, TransUnion and Equifax – the three major credit bureaus. The response was to create a new credit-scoring model, called “FICO 08”, which would ignore authorized user accounts when calculating someone’s credit score.

This plan, however, ran into a complication – and a large one, at that. According to FICO, ignoring authorized users would block the company’s compliance with Federal Reserve Regulation B, which requires lenders to consider shared accounts of spouses when considering a married person’s credit risk. If the company ignored these relationships, it would’ve run afoul of the rule.

So although FICO says it has discovered a way to restore authorized user accounts to its formula while, at the same time, reducing the impact of piggybacking, authorized users are still a part of the mathematical analysis – although possibly not as big a part as in past formulas.

A possible disadvantage

All is not entirely rosy on the authorized user front, though, even if you do decide to go this route. The fact of the matter is that if the account holder continues to pay his or her bill on time, your credit score will continue to reflect this positive activity. If, on the other hand, the account goes unpaid, your credit score could also take a serious hit.

As we see it

When all is said and done, as a consumer with bad credit you need to decide for yourself how you want to go about improving your FICO scores – just be sure, before you go ahead with your plan, that the process you’re using is legal.

One thing you can do that is totally legal is to apply for auto loans for bad credit. Here at Auto Credit Express we have helped literally thousands of people with bad, blemished, bruised and tarnished credit buy cars and reestablish their credit at the same time. Our nationwide network of affiliate dealers specializes in bad credit car loans.

So if you are serious about getting your credit back on track, why not begin a new chapter in your life by filling out our bad credit car loan application now.

Posted on July 2, 2010 by in Credit Repair
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