Piggybacking Not Done Yet

Posted by Mike Smith :: September 19, 2008 @ 9:36 am

Despite a pledge to stop recognizing authorized user accounts in determining FICO scores, Fair Isaac has since recanted and will continue to use them after all. While this is good news to many authorized users, it will also allow the fraudulent practice of piggybacking to continue.

The way authorized user accounts work is that someone with good credit can allow another individual to use his or her credit card. That person, known as an authorized user, gets the benefit of having the cardholder's payment history appear on his or her credit report. This can be particularly useful for college students and spouses without much credit history of their own.

We first described piggybacking in a post announcing improvements to Fair Isaac's method of determining credit score. The basic idea is that someone with bad credit, or limited credit, could pay to become an authorized user on the account of a stranger with good credit. They basically pay a fee, part of which goes to the account holder, to have their credit history amended to include good repayment information. Clearly, this is a fraudulent practice and artificially inflates a person's credit score.

Fair Isaac may have reversed its decision because there are many more people using authorized user accounts in accepted ways than those using them fraudulently. Helping out a spouse or adult child is a legitimate use of authorized user accounts. Lenders are also required to consider a spouse's credit history when determining credit risk. Without continuing to recognize authorized users, some lenders felt they would not be able to use Fair Isaac's scores. Seeing the bulk of their business disappear would certainly be reason for Fair Isaac to reconsider their decision.

While they have not given specific details of their updated scoring system, Fair Isaac did say that although authorized users continue to be used, other provisions make piggybacking and similar fraudulent credit score manipulation schemes more difficult to accomplish. I suppose that the majority of people, using authorized user accounts appropriately, shouldn't be penalized for those using them fraudulently, but in the end fraud will continue to cost us all.