I came across this interesting underwriting tool on-line called: AU filter, by CreditXpert. It seems that this underwriting product will be able to calculate ones' score without taking into consideration AU accounts. I know this is not for actual FICO scores (yet), but I have a feeling that this will be something many lenders will be eagerly interested in, in the near future, to more accurately asses risks and minimize default margins. I thought I share.....
Read below (excerpt from website):
CreditXpert Inc. is again transforming the lending industry-fulfilling our mission to provide lenders and brokers with the critical tools necessary to ensure success in today&s difficult mortgage market.
With the introduction of the CreditXpert AU Filter™, CreditXpert is launching the first product on the market to help lenders easily assess the impact of authorized user accounts on a borrower&s credit. The CreditXpert AU Filter is compatible with the scoring models for all three bureaus.
CreditXpert AU Filter
With the CreditXpert AU Filter, lenders will be able to analyze credit files with authorized user accounts included in the analysis and analyze them again with these accounts removed. By doing so, the CreditXpert AU Filter provides lenders with the score impact of that change, thus enabling them to take the true risk impact into consideration when underwriting loans.
As a comprehensive solution to underwriting, the CreditXpert AU Filter also provides reason codes that could be used in declining loans. These reason codes are written in a consumer-friendly manner so the applicant can easily understand the primary reasons why they were refused.
CreditXpert always has its finger on the pulse of the credit economy, and the CreditXpert AU Filter is designed to ease the transition to the new bureau scoring models that will exclude authorized user accounts, once these scores are widely accepted and used.
The Impact of Authorized User Accounts
It is estimated that 30 percent of the 165 million scoreable credit files in the United States have at least one, but more commonly two to three authorized user accounts. CreditXpert Inc. estimates that 60 percent of those files will experience a credit score change when authorized users are not considered in scoring.
This means that some 50 million consumers may be affected by the changes being contemplated-from the millions of spouses listed as an authorized user on credit cards to the one, well publicized case, where a single Discover card had 1,800 authorized user accounts. As many as 3.3 million people in the United States may effectively lose their credit score because their credit history was established only through authorized user accounts.
To read CreditXpert Inc.&s position statement on the authorized user account issue click here.
What is an Authorized User Account
Authorized user accounts refer to the practice of "renting" the credit history of a high credit scoring individual to improve one&s own credit rating. An authorized user account can be a spouse added to a credit card, a child or even a close friend.
Recently, another form of an authorized user account has become prevalent: Piggybacking. Piggybacking is a for-profit form of credit renting, a growing practice that allows people with bad credit to piggyback on the strong payment histories of credit card holders by becoming an authorized user on the account.
Piggybacking
A person with no credit score or a low credit score pays a fee to rent a spot as an authorized user on a stranger&s account. The payment given to the person allowing the piggybacking on his or her credit history depends on the quality of his or her credit line. With their newly improved score, consumers are able to obtain a lower interest rate on mortgages, car loans or personal loans. In some cases, it even helps them get their loan approved instead of denied. Many observers believe that piggybacking could well be contributing to the problems being experienced by some consumers in connection to their subprime or near subprime loans.
The leading "renting company" ICB charges $900 for the first credit card account, with a discount for additional accounts. The cardholder allowing the piggybacking on his or her credit history can receive $100 to $150 per slot, depending on the age and credit limit of each card. ICB pockets the rest.
The effect on a credit score can vary depending on what else is in a client&s report, but one borrowed credit card account can increase a score between 30 and 45 points, two between 60 and 90 points, and five between 150 and 205 points, according to ICB. That&s because the computer program that calculates scores is essentially tricked into believing the credit renter has a better repayment history when it sees the added accounts, and that helps lift the credit score.
So what was once considered something parents could use to help their kids get started with credit, or a mechanism that a spouse could use to help their significant other clean up credit, is now being scrutinized as credit piggybacking.
What is Being Done
Today&s practice of credit piggybacking is currently a loophole in the system. Many high-ranking industry professionals, however, fear that the resulting credit upgrades are major contributors to the increase in foreclosures.
The issue is even catching attention at the state legislation level, with Nevada and New Hampshire already calling the practice "fraudulent". It is also being called the "first great scam of the new millennium" by financial expert Terry Savage (TheStreet.com).
The overall consensus taking shape appears to focus on the fact that being an authorized user on someone else&s account does not demonstrate an individual&s ability to pay their credit obligations. Both the NAMB (National Association of Mortgage Brokers) and the MBA (Mortgage Bankers Association) have taken formal positions against for-profit use of adding an unrelated person as an authorized user to inflate credit ratings. For these reasons, it may not make sense to include authorized user account in the calculation of a credit score.
Total CL's combine: $150,600.
