Authorized User: Piggybacking Practice To End

12 Jun Authorized User: Piggybacking Practice To End

Piggybacking is where one person “lends” their good credit to another by making them an authorized user on one or more of their credit accounts. The good credit of the first person is then reported as an authorized user tradeline on credit reports which in turn helps build or rebuild a credit score. And Fair Issac Corporation (FICO), the big daddy of credit scores, says it’s going to kill the practice soon.

Bankrate‘s Brigitte Yuille reports that FICO will adjust its credit score model to leave out authorized user accounts starting in September. A small industry has sprung up matching folks with good credit scores with those who have lousy FICO scores and, for a fee, brokering the authorized user addition. The credit industry considers this fraud and deception — helping to mask the potential borrower’s true credit risk — and Fair Isaac says it wants to protect creditors from it.

The irony is that although the change will hurt some consumers who take advantage of these paid services — or families who simply “lend” their good credit to their kids to establish credit — it will just as often be a boon to other consumers. So while Fico may be acting now to protect lenders, it would have been better if Fico had not included authorized user information in scoring in the first place.

How could it be a bad thing? Suppose you are the authorized user on an account used by your cousin Ralph. You don’t even remember why except at some point he gave you a card. Now Ralph is in serious trouble and he’s racked up a lot of debt and he might have to file bankruptcy. While you may not be legally liable for Ralph’s debts, how do you think your credit score is being affected by your status as an authorized user on his unpaid account?

So what relevance does Ralph’s credit has to yours? Probably none. You don’t have to step up and pay that debt for Ralph since you are not a co-signer. But, while Fico keeps it’s model secret, it certainly sounds like they are treating authorized user status as though you had co-signed the debt. From the perspective of Fico’s main customers — the credit industry — that might be a good thing. It might encourage you to step up and voluntarily pay the accounts for Ralph that you are authorized to use. That may be good for the lender and for Ralph but all you’re doing is taking over his debt problem, probably.

It is easy to see there may be reasons authorized users should have the account payment record reported for them. Many consumers don’t really know the difference — or act like there is a difference — between a co-signed debt and simply having authorized use of someone else’s account. They may treat it the same way and therefore the account payment history might reflect the authorized user’s credit risk. There are likely other reasons why Fico has included this information in their models but, interestingly, they do not claim on their website “What Is In Your Score” tutorial that authorized user accounts are included in the model. So they will be ending a practice which they were not bragging about in the first place.

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I have been a bankruptcy attorney since 1989. Our firm represents consumers filing bankruptcy almost exclusively, although I have represented bankruptcy trustees as well as creditors. For 2017-2018 I am also serving on the American Bankruptcy Institute's Commission on Consumer Bankruptcy. If you live in Eastern Missouri, visit our website, send an e-mail or give us a call (314) 781-3400. Our website: STLBankruptcy.com
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