New FICO Scoring Model Reinstates Piggybacking
What’s piggybacking, you say?
A practice that once allowed parents, siblings, or friends to help individuals build their credit scores – but was discontinued due to abuse. Here’s how it works:
An individual with a stellar financial reputation, and thus a high FICO score, simply added another person as an authorized user on their credit card accounts. They didn’t add the person as a joint owner of the account – just an authorized user.
Then the activity on that credit card was reported both to the card owner and to the authorized user. Since the activity was all credit-building, the authorized user’s credit score got a boost.
Piggybacking was a useful tool for parents helping children get off to the right start with good credit scores, and was also used to help loved ones who had poor credit scores and needed help raising them.
Then someone saw an opportunity to make money and began selling authorized user status on high-ranking credit card accounts. Before long, the folks at FICO figured out what was going on, and stopped counting authorized user status when calculating credit scores.
Now it’s back, but with a few changes. Fair Isaac says they have new technology that will allow it to spot abuse and keep the piggybacking benefit in the realm of valid friend and family relationships. They did warn that building credit through piggybacking will take longer than it did in the past.
Other changes in the FICO scoring system, called “FICO Risk Score, Classic 08,” will cause credit scores for as many as half of all consumers to rise or fall by 20 points or more. For instance, if you have one or two minor credit infractions on your credit report, your score could see a boost.
The new model has been adjusted to consider the severity and frequency of credit missteps – so that individuals who have only 1 or 2 small black marks aren’t lumped into the category with consumers who have a string of unpaid collections over a long period of time.
FICO also announced that under the new scoring system collections with an original value of $100 or less will not be counted under the new system. That’s good news for consumers who may have a small account in dispute.
Interestingly, only TransUnion will be using the new method in the immediate future, so your lender may stay with the old system until Equifax and Experian come on board.
