Born in the era of the past seller’s market, some credit-boost companies advertise that they can quickly boost a person’s FICO credit score by 200 to 300 points. These rent-a-credit lines or rent-a-credit card companies pay credit card holders with high FICO credit scores to accept unseen borrowers as authorized users on their credit cards. The credit card holder gets the fee. The unseen borrower gets to use the credit card holder’s good credit history and high FICO credit score, but does not have actual access to the credit card to use for purchases.
Recently, the mortgage industry, federal and state regulators, and the credit industry have requested that Congress plug the loopholes that allow this practice, citing its potential to perpetuate mortgage fraud. While Congress is looking at this, many mortgage companies are scouring applications for the borrowed FICO scores.
Congress may find it difficult to stop this practice by legislation. The issue of authorized users traditionally was something given to the cardholder’s children and close relatives. Parents would allow their children to tag along as authorized users on a credit card as a way to teach their children how to deal with credit, for use in a real emergency, as a way to protect their children from overusing credit, and as a way for the children to build their own credit on their parent’s financial history.
For example, a just-graduated college student with little credit history has been able to get up to an almost 100 point raise in his or her FICO credit score by just being an authorized user on his or her parent’s credit card.
By mid 2008, FICO 08, a new software program, will be introduced that will no longer consider a person’s authorized user accounts in computing his or her FICO credit scores. Once the FICO 08 software program is in place, the student in our example will no longer get any credit benefits from his or her parents.