Authorized Accounts and Fico 08

Posted by: Meredith K. | Jan 08,2008


In my coverage of Fico 08, the new Fico scoring model being unleashed this year, I’ve mentioned how it will help out responsible borrowers who pay their bills on time.  At the very least, it will help out those credit cardholders who may have defaulted once or twice.  In the past, these types of cardholders may have been labeled as severely delinquent, when they’d only made a minor mistake.  

Who of us have not paid a credit card bill on time?  I’m not just talking about college students, but everybody.  It would be nice to believe that everybody’s completely responsible about paying their bills, but it’s a pretty busy world.  It could just “slip your mind” and just like that you’ve defaulted.  Note: this is a reason to pay your credit card bill as soon as you get it in the mail, instead of putting it off for later.  

One of the casualties of the new Fico scoring method is that it does away with authorized accounts.  While young borrowers can benefit from Fico 08 by being rewarded for responsible payment and a diversified number of debts, they cannot “piggyback” on someone else’s credit card account.  This was common when a student would have a parent co-sign a credit card account with the end result being that the student would reap benefits of the parent’s much better, and much longer, credit history.  

With Fico 08, this will no longer be possible.  The entire reason for Fico 08 is to get a more accurate picture of each borrower’s risk as a borrower. Eliminating authorized accounts is one way to achieve this, as a lender cannot get a sense of an individual student’s risk if he’s carrying his parent’s rating.  I have to say I agree with the lenders on this one.  Though authorized accounts were a good trick to beat the system in the past, they were just that: a trick.  That said, there are critics of this change in the system, saying that it will penalize women who have thus far been attached to their husband’s credit rating.  I understand that, but I still do advocate that everyone establish their own credit rating and don’t rely on anyone else’s.  

Sponsored Resources Ads by Google