Seasoned credit lines- Read before you purchase

Got this email newsletter today from MyFico.com (a division of Fair Issac):

Dear myFICO,

I’m trying to build up my credit quickly so I can purchase a new home that I found and absolutely love. I was told the quickest way to raise my FICO score was to be added as an authorized user to someone’s credit card who has a long history with on-time payments. Is that true? If so, how would I go about doing that?

Renata
Newark, New Jersey

Dear Renata,

Your question has been a hot topic in the news recently. First a bit of background: FICO® scores originally considered authorized-user accounts because our scientists found that in some cases that information can help us determine a person’s credit risk. By coincidence, some people found it also was a way for a parent to help another family member establish a credit history. For example, a parent might add a teenager as an authorized user to an existing credit card account. The teenager could learn how to use the credit card under the watchful eye of the parent, without being financially responsible for the account. Since the bank would report the account history to the teenager’s credit bureau file, it also helped the teen start building his or her own credit history.

While this practice began with good intentions, recently several websites have begun offering services to boost a FICO score by adding their customer as an authorized user to a complete stranger’s credit account in good standing. The customer never actually gains access to the credit account. Instead, the arrangement intentionally misrepresents the customer’s own credit history to the FICO scoring formula, as well as to lenders and other businesses. Courts and government agencies have yet to rule on whether this practice is legal. However, to protect FICO scores, Fair Isaac is changing its FICO scoring formula so that it will no longer recognize authorized-user accounts.

So, to answer your question: no, we would not recommend that you be added as an authorized user to someone’s credit card just to raise your FICO score. However, there are definitely things you should know about your FICO score and establishing your credit history – this free booklet is a good place to start. You might also benefit from hearing what people are saying about establishing credit on the FICO Forums.

Trying to buy a home when you have a limited credit history can be difficult, but be wary of web sites stating they can boost your FICO score to help you qualify for the best rates on a mortgage. In fact, some of these sites may be advising you to commit mortgage loan fraud – such as by providing false financial documents in your loan application.

Sorry to say, there is no quick solution to building up your credit history – like getting into shape; it takes time and diligence. Hopefully, we’ve provided some advice to point you in the right direction. Almost as important as knowing the things you can do to establish your credit is knowing the things you shouldn’t do! From all of us at myFICO, we wish you success in building your credit and finding your dream home.

Sincerely,
myFICO Team

Trying to buy a home when you have a limited credit history can be difficult, but be wary of web sites stating they can boost your FICO score to help you qualify for the best rates on a mortgage. In fact, some of these sites may be advising you to commit mortgage loan fraud – such as by providing false financial documents in your loan application.

Sorry to say, there is no quick solution to building up your credit history – like getting into shape; it takes time and diligence. Hopefully, we’ve provided some advice to point you in the right direction. Almost as important as knowing the things you can do to establish your credit is knowing the things you shouldn’t do!

Imagine that!

The way around the FI’s new regulations is joint accounts instead of authorized user. A side legal agreement about who actually pays the account, and risk can circumvent this.

IMO the only person that should be a joint account holder is someone you ACTUALLY know. Spouse, life partner, relative, etc. These services that add someone on to an unknown, unrelated party are absolutely retarded.

These types of programs will fade away just like the questionable DAP programs that have come and gone.

If anyone wants to be joint on any of my tradelines send me $50k and I’ll think about it. :deal

Thanks for the post, Rich! I hope we can put that scam to bed. I agree that it’s misrepresenting someone’s score and doesn’t do what it was actually intended to initially. Crooks will always try to figure out a way around the rules and it’s too bad it hurts the honest folks.

If something is legal, doing it does not make one a “crook”.

Thank you for the voice of reasoning—I have been bullish on this for awhile and well aware that this issue is in contention as we speak (it probably won’t stop there—authorized user status might be next).

SIDEBAR FOR CHRIS: What is a DAP—Do you mean DPA as in down payment assistance?

Regards,

Scott Miller

Scott,

You that is a bit confusing. When I started in the business at Bank of America they called it “down-payment assistance program” or “DAP” for short. Now it is one of those things that I can never stop saying. I also say sweeper instead of vacuum cleaner. Drives my wife and kids totally nuts.

LOL—I thought I was remiss in my duties, not knowing all the acronyms and all…

Regards,

Scott Miller