Authorized User Accounts

[CreditBob]

I want anyone that has an authorized user account or added someone as an authorized user to please read this very carefully. So think before you have an "AU ACCOUNT".

There are two problems that you are realistically going to run into. First of all authorized user accounts are no longer calculated in the Pico credit score formula. Second more & more creditors will not accept an authorized user account. Now here is the reason why. Having accounts (trade lines) demonstrate the person's ability to payback accounts through their actions. In other words they have to earn it. The actions of an authorized user does not demonstrate responsibility. So it is only fair that in order to get a good credit rating each person must earn it. The only way to do that is for your daughter to open an account when she turns 18 years old. And of course all credit card applicants under the age of 21 must have a cosigner and this new law will take effect tomorrow on February 1, 2010.

This is how myself and lenders look at authorized users, and I know this because I have talked to some of the executives with the major banks & credit card companies. Having a good credit rating has to be earned and can not just be handed out like candy. It is also looked at being dishonest. The lender also can not get a feel for the person as far as their credit character goes which leads to the question, will this person be able to payback the loan or credit card because the account does not belong to them?

 thing that was on their credit report was authorized user accounts from mom & dad. If I were you I would have those accounts removed because it will not do your child any good. The same thing goes with auto & student loans or any other type of credit.

Also there are lenders that are going through their consumer files and weeding out the authorized users. Furthermore some of them are having the accounts removed. Here is another situation that I am aware of. A few individuals have gotten turned down within the last few months because the only had authorized user accounts reporting and nothing else.

[fused]

I do know that AU accounts are still factored in FICO scoring. In fact, when FICO 2008 becomes popular, it too will continue to factor AU accounts in scoring. The only difference being is that the algorithm will supposedly have a way of "weeding out" bogus, piggybacking AU accounts. As for how some lenders are handling AU accounts, I'm not to sure. I haven't apped in a long time.

[Uborrow-Upay]

I respectfully disagree with some of your analysis, CreditBob.

Fused has addressed the FICO scoring issue, above.  Bogus piggybacking is disallowed, probably thru an address matching system.  Genuine AUs are still factored in.

As to the rest, I see AU accounts as being "character references" for the AU from the primary cardholder, who has earned that good credit rating by building it.  If the primary cardholders are Mom and Dad, little Susie has to deal with them if she screws up.  She'll develop good credit habits pretty fast, if she doesn't already have them.  That's a heavy hammer over her head, and far scarier to her than anything a faceless credit card issuer could do to her at some time in the future, (which for kids that age is far, far away...)

AUs accounts viewed as being "dishonest"?  There is nothing dishonest about a parent or a spouse helping their loved one establish good credit.  I think that an AU has a higher likelihood of being responsible with credit than does someone who has not ever been an AU.  There's a built-in accountability on a very personal level for AUs.

And for someone without any other credit whatsoever, that AU account is a line of credit, albeit extended by Mom and Dad.  I have to trust someone very much to allow him/her to run up bills under my name, and if my assessment of that individual is dissed by an issuer, then I dump the issuer, not my trusted AU.

As long as FICO continues to factor legitimate AUs into scoring, it will do the child (or whomever) good.  It will help establish credit.  If that doesn't cut it with a particular lender, that's their choice.  Of course, then I get to choose another issuer to do business with.

I would not recommend cutting off existing AUs, and I do recommend that parents/spouses continue to add children/SOs as AUs onto existing accounts for the purposes of establishing credit for that AU.

Everybody has to start somewhere, and adding an AU account is a valid, valued and time-honored traditional way of doing that.

Peace!

***Edited to add this quote from MidnightVoice, which appeared in another thread on this same topic way back in June, 2007:

"People may not believe it, but some cardholders make members of their family AUs for reasons OTHER than fiddling with credit scores 

"For example, my daughter carries one of my cards as an AU, so if she ever gets into real trouble (car breaks down, stuck in an airport, starving etc) she had a bunch of credit available.  She has not yet used it, and I hope she never has to.  But we are all happier knowing she has it..."

I think it was well worth repeating this sentiment here.

Message Edited by Uborrow-Upay on 02-01-2010 08:47 AM

Message Edited by Uborrow-Upay on 02-01-2010 08:47 AM