Bad Credit Car Loans and New Authorized User Rules

New credit report practices have again changed the rules regarding authorized users on credit card accounts.

The history of the authorized user

Here at Auto Credit Express we’ve been a bit lax about informing our customers of the changes that have occurred over the past year regarding authorized users on credit card accounts. And while FICO won’t divulge their new formula, it’s fair to say that it will affect a fair number of consumers and we thought you might want to know about some of these changes.

An authorized user is a person assigned to a credit card account that is not the account holder. In the past, being assigned as a user to a credit card account to an account holder with a high FICO score would also boost the FICO score of the authorized user.

In many cases, companies that specialized in credit rebuilding would solicit credit card account holders that had high credit scores, offering to pay the account holders for the use of their accounts for this purpose. The credit rebuilding company would then “piggyback” their clients to these accounts and, having done nothing else, their clients would then see their credit scores rise. This happened in hundreds (and perhaps thousands) of cases.

The fallout

As this practice became more prevalent, it began to attract the attention of all three major credit bureaus (Equifax, Experian and TransUnion). Their response was to begin eliminating the effect that an authorized user account would have on an individual credit score. It also elicited a response from FICO – their newest scoring model, FICO 08, was engineered to ignore authorized user accounts. But in the process, FICO ran afoul of none other than the Federal Reserve.

Soon after FICO announced their latest model, a number of lenders approached the company and stated that their use of FICO 08 would result in noncompliance of Federal Reserve Regulation B, which requires lending institutions to consider a married applicant’s shared account with a spouse when determining credit risk (unlike VantageScore which has never considered authorized users in its scoring model).

As a result, FICO reinstated authorized users to its formula, although the company has stated that it has found a way to reduce the impact of “piggybacking”.

The Bottom Line

While it’s still too soon to see the effect of FICO 08, it’s also important to realize that becoming an authorized user on someone else’s account also has its disadvantages. If the account holder continues to make monthly payments on time, your score will continue to look good. But if something should happen (and in the current economy you can’t say that it never will), the account holder’s FICO score, along with your own, will take a hit.

Here at Auto Credit Express, we’re aware of how difficult it can be to rebuild your credit. We’ve been in the subprime car business for nearly 20 years and have helped thousands of customers reestablish their credit by helping them purchase new as well as reliable low-mileage used cars. For more information, visit our web site at

Posted on October 22, 2009 by in Uncategorized
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