In The News: Credit Scores Changing

Your credit score could soon be changing, according to news released by Fair Isaac, which calculates the FICO score used to determine your credit card offers, rates for home and car loans, as well as rewards packages. Have a low FICO score and your offers won’t be as irresistible as someone with a perfect score of 850.

What’s changing, you ask? Fair Isaac recently announced they would not recognize authorized user accounts. These are frequently accounts created by one person, the primary, and another person is added, sometimes as an afterthought. It’s common to see these accounts created by parents and then offered to Junior as a means to help build his credit history and score.

Sometimes a spouse will open a credit card account without the presence or knowledge of the other spouse and decide to add the latter. Because this person is added after the account is created, he or she would be considered an authorized user as well. How do you avoid that? List both spouses on the initial application. If no space is available, call the bank or institution and ask if they can add your spouse when you apply.

A little sidebar here: adding the spouse as an authorized user if fine, but don’t get angry with your credit card company because your spouse, the authorized user, cannot close the account, request a balance transfer or request new cards. The authorized user has some limited powers on account and can usually request information, but is prevented from making any major steps or actions.

Previously, if Junior was listed on the account as an authorized user, he would have the benefit of the primary’s account appearing on his (junior’s) credit bureau reports.

What prompted this was the ability over the last year for one to purchase authorized user status on a stranger’s account to rebuild your own history. This practice led to changes.

There are some steps Junior (or your spouse) can take to build his own credit history. If he or she has no credit history at all, they want to begin with a starter card, perhaps a small department store card. I would advise making a single small purchase once a month on the card for several months. Pay the bill in full every month and avoid finance charges.

If you’re not considered creditworthy by the banks, your child or spouse may need to begin with a secured card. This type of card requires a cash deposit. Usually, these cards can be converted to unsecured cards later on down the road.

If you’re running into roadblocks on applications or finding your requests for credit denied, you may want to pull a copy of your own credit bureau report. Americans are now entitled to a free annual copy of their credit bureau reports from each of the three agencies. Go to http://www.annualcreditreport.com/. That’s the only government-endorsed, truly FREE website created for the purpose of the Credit Report Mandate. The other websites are just copycats and will charge you something.

You can pull all three credit bureau reports at once if you want, but I recommend spacing them out. Start with Experian or TransUnion and then rotate between the three, pulling one every four or six months to stay on top of it. Put a note on your calendar and an alert to self in your Outlook. This is only going to give you the credit report, not the FICO score. I know you can purchase the FICO score there and I believe it’s $5.

If Junior or your spouse has a poor credit history, I would strongly encourage them to improve that by paying your bills on time. Fair Isaac bases more than a third of your FICO score on payment history.-SH