Editor's note: All previous stories describing the design of FICO 08 to exclude authorized user accounts were based on information that is now outdated. FICO 08 will now include authorized user accounts in scoring.
Piggybacking, a controversial practice that involves
"renting" a credit history to improve your credit score,
may soon come to an end.
Fair Isaac Corp., the company responsible for FICO
credit scores, has decided that when it unveils a new version of its credit score system in September, it will close the loophole that
Angry proponents of piggybacking say they'll organize
a grass-roots campaign to fight against the change.
With piggybacking, a consumer with poor credit is
placed as authorized user on the credit card of a person with a
stellar credit history. Authorized users benefit from having the
payment history of the primary cardholders show up on their credit
reports, thereby improving their credit scores.
Lenders have complained that it is fraud and distorts
the credit score system.
Internet companies have created an industry by playing middleman -- paying
a small sum to those with good credit to take on those with bad credit as authorized
users, then collecting healthy fees from those consumers.
Now one of those Web-based firms has threatened to organize an
effort to expose problems in the credit scoring system.
"Our very existence (proves) that the FICO system
is so flawed," says John Coates, spokesman for Instant Credit
Builders based in Largo, Fla.
Fair Isaac says that starting in September it will
ignore authorized users as it calculates the renowned FICO credit
"Fair Isaac has become aware that Web-based services
are using authorized trade lines to defraud lenders," says
Craig Watts, spokesman for Fair Isaac. "While we work with
the financial services industry on an industry solution, we wanted
to protect lenders and FICO scores."
The FICO credit score is used by lenders to assess
risk in lending money. Lenders factor this number, which can range
from 300 to 850, in credit decisions. Watts says 90 percent of the
largest U.S. banks base their loan decisions on FICO credit scores.
Watts says the change will prevent people from misleading lenders
about their true credit risk.
Coates argues the system can't be easily changed.
"Maybe our system can definitely show you, OK,
there seems like there's a loophole and there are flaws that increase
the score. You know what? There are also a zillion flaws that decrease
the people's scores."
He says Instant Credit Builders plans to bring to light every flaw
in the credit scoring system.
"We are building a community of people that are going to stand
up. We will petition against it and we are actually going to formulate
plans to work together as a grassroots effort to actually create
a financial revolution," he says.
Those who rent credit histories won't be the only
ones suffering a loss. Often parents will attempt to give their
children a jump-start on a good or improved credit history, and
they'll be taking a hit as well.