The Fair Isaac Corporation announced a major change in 2007 to their credit scoring formula, which ignited quite a bit of controversy and anticipation throughout the industry over the past year. The lending world does not see these types of changes often, so one can imagine the amount of hype generated by the official announcement that individual credit scores would no longer benefit from authorized user tradelines. What does this really mean for you? It simply means that if you have been relying on authorized user accounts to build your credit history, your score will likely decrease once the new model is implemented. Exactly how much it will decrease is still unknown, but it will definitely go down. Therefore, this has been a substantial concern for young credit users who relied on their parents to add them as authorized users or individuals who decided to give up their credit cards when they were married and become authorized users on spouse/s accounts. The good news is these types of changes often take a long time to implement in the financial world, so there is still time to appropriately prepare by following some simple steps we outline towards the end of this article.
Experian Fair Isaac Risk Model v08
In May 2008, Experian became the first to implement the model and make it commercially available to their clients. They have named the new credit score the "Experian Fair Isaac Risk Model v08", and lenders are beginning to experiment with utilizing the new system in their underwriting process. It is difficult and very expensive for lenders to implement a new scoring model into their workflow, so it is possible that many will not begin using the new model for months or even years. However, it is important to recognize that if you are planning to apply for a loan with a car dealer or mortgage broker that happens to use Experian, it is quite possible that the score they will use to make the lending decision will be based on the Fair Isaac Risk Model v08. On the other hand, TransUnion continues to push off implementation of the new model until late 2008, and it appears that Equifax will not release a new model at all in the near future.Â
Quick Tips for Those Relying on Authorized User Accounts
Even though Experian already released the new model to their clients, there is still plenty of time for you to prepare using a few simple steps. The first thing you should do is review all three of your credit reports online to determine which accounts list you as an authorized user. Each account will indicate if you are the primary holder, a joint holder, or an authorized user, so this will be easy to identify. Secondly, determine if it is a viable option to change your status to a joint holder on all the accounts that list you as an authorized user. If so, contact the bank or credit card issuer with the authorization of the primary account holder and have your status changed. Thirdly, if that is not possible, consider applying for a new credit card or two in your own name before your score is negatively affected by the change. The inquiries on your credit file may lower your score a small amount at first, but you will see a great benefit to your credit score as you responsibly use your own credit card and pay off the balance each month. If you have damaged credit or no personal credit at all, you may need to rely on a secured card, retail card, gas card, or other non-prime products to begin establishing a stronger credit history.
