Data Facts Answers Question About Authorized User Accounts

Question:  “In the past, our mortgage company has encouraged borrowers who have either little credit or are rebuilding their credit to become an authorized user on the account of a spouse, parent, or sibling. Recently, however, we have heard that authorized user accounts are no longer factored into a person’s credit score, and will not help increase a credit score. What is true?  Help!”

Data Facts answers: The designers of the credit scoring formula model (FICO) meant for authorized user accounts to be utilized for a person with good credit and a long credit history to be able to assist their children, spouses, or siblings with their credit history. When an account holder adds another person to their account as an authorized user, that person gets all the benefit of the good payment history. In lots of cases, this dramatically increases a person’s credit score.

Sneaky people began to exploit this practice. Websites popped up selling “piggybacking”. A person with less than stellar credit history could be added to a complete stranger’s credit, and artificially boost his score.  These websites charged thousands of dollars, and paid people with good credit to add dozens of stranger’s names to their credit accounts!

In an attempt to eliminate this practice, the credit score model builders for Fair Isaac originally decided that their new scoring model- FICO 08- would NOT consider authorized user accounts in the formulation of the credit score.

 After further research, however, they reversed this decision. Eliminating authorized user accounts would wipe out millions of consumers’ credit scores who utilize the authorized user status legitimately (they are authorized users on their parents’, spouse’s, children’s, or siblings’ accounts). The model builders decided to allow the authorized user status to still be figured into the credit scores. (Keep in mind the model builders have added additional- although undisclosed- measures that will close the piggybacking loophole).

Allowing authorized users accounts to be figured into the credit score is great news to millions of consumers who maintain that status legitimately. However, if you are an authorized user, try to follow these tidbits of advice:

 – Make sure the main account holder has a good credit history. An authorized user does not need to be on accounts that have just been opened, or accounts with late payments or high balances. The goal is to use the account to boost a credit score. A credit line that is new, paid late, or almost run to the limit will most likely result in the score dropping.

–  Open at least some accounts in your name. While an authorized user designation does figure into the credit score, some lenders remove those accounts from consideration during lending decisions. Consumers should realize it’s risky to rely on authorized user accounts for their entire credit history. It is recommended that consumers be a main or joint borrower on at least a couple of credit lines.

–  Be sure you trust the main account holder. If the main account holder begins paying late or runs up the balance, your credit will be affected (remember, however, an authorized user will not be responsible for the debt).  Make certain the account holder is someone you trust to make good financial decisions before becoming an authorized user on their account.

When employed correctly, the authorized user designation continues to be a helpful tool which consumers can utilize as a boost to their credit history. It is not a long-term solution, and should be used as only one small portion of the credit building plan.

~~Susan McCullah is the Product Development Director for Data Facts, a 23 year old Memphis-based company.  Data Facts provides mortgage product and banking solutions to lenders nationwide. Check our our website for a complete explanation of our services.

Credit Score Success from Scratch; a Simple Recipe

A high credit score is like a homemade meal; it takes time, patience, and cannot be whipped up instantly.  Let’s look at the recipe to build a great credit score from scratch:

First, you need to have the ingredient of credit. People who don’t have any credit are not showing the credit scoring model their financial management skills.  A credit card, home loan, or car note is a main ingredient in the credit score recipe.  Remember: you are not required to carry a credit card balance. Using a credit card will help build your credit even if you pay it in full every month.

Second, make sure you pay a lot of attention. Pay those credit obligations on time, because timely payment is the single most important aspect of building a good credit score.  You can gain lots of points by having a good history of on time payment, and, conversely, you can spoil your credit score with just a few missed or late payment patterns.

Third, keep those credit card balances low. Credit card balances are like salt, less is more.  The credit scoring model looks at your credit card balance in relation to your credit limit (this is called a credit utilization ratio). The lower the ratio, the more positively it affects your credit score. Make sure to never charge over 30% of your total credit limit, because you don’t want to get penalized.

Fourth, keep those old credit cards open and use them every now and then. You will get points for a long, lengthy credit history.

Fifth, don’t add too many ingredients all at once. If you don’t have any credit and are just starting out, don’t open too many credit cards too fast. One line of credit every year or so will work out great.

Sixth, remember to have more than one ingredient, if possible. The scoring model likes to see that a person can manage a mix of credit. Having installment loans (mortgage or car) and revolving loans (credit cards) will give a boost to your score.

Seventh, keep an eye on it. Check your credit report at least once a year and examine it carefully.  Make sure there aren’t any errors (such as creditors that you don’t recognize, late payments or collections reporting incorrectly, etc). This happens all the time, and the sooner you catch it, the better off you will be. Dispute any incorrect information to get it removed.

Attaining a great credit score takes a little time, self discipline, and attention. However, putting in the effort will assure that you can get the best deals on mortgage, auto, and credit card rates. Following the recipe we just laid out is a great start to help you cook up a great credit score!

~~Susan McCullah is the Product Development Director for Data Facts, a 23 year old Memphis-based company.  Data Facts provides mortgage product and banking solutions to lenders nationwide. Check our our website for a complete explanation of our services.

From Data Facts: A Quick Check of Your Compliance Standards

Red tape, bureaucracy, paperwork!  Whatever you want to call them, compliance rules and regulations can be time consuming and confusing.

However, complying is very important, and should be a top priority. The penalties for non-compliance are just too stiff to ignore.  Here are a few tips to help make sure you (as a mortgage lender) are in compliance with federal and state regulations. *

Befriend the FCRA:

The Federal Fair Credit Reporting Act regulates the operation of consumer reporting agencies, and also affects you as a user of information. It regulates how a consumer’s information may be used, and restricts who has access to this sensitive information.   In order to be in compliance, one needs to have a thorough understanding of the FCRA.

Store your paperwork:

The Federal Equal Opportunities Act states that a creditor must preserve all written or recorded information connected with an application for 60 months. In keeping with the ECOA, Data Facts, Inc. requires that you retain the credit application and, if applicable, a purchase agreement for a period of not less than 60 months.

 Properly dispose of sensitive information:

As part of the Fair Credit Transaction Act of 2003, if a consumer report is being used for a business purpose, it is subject to the Disposal Rule.   This rule calls for the proper disposal of information in consumer reports and records to protect against “unauthorized access to or use of the information.”

Guard your emails:

Email hacking is becoming more and more prevalent. Periodically review how your organization is using email to exchange information. Make sure sensitive information that is being sent via email is protected by using Winzip password protection, and by never sending social security numbers in the body of the email.

Have a plan for a breach: 

If you have not already done so, establish processes and procedures (in a written plan) for responding to and containing security violations, unusual or suspicious events and similar incidents. The goal should be to limit damage or unauthorized access to information assets and to permit identification and prosecution of violators.

 Know your state laws.

Certain states have passed restrictions in addition to the FCRA. Make sure to be familiar with any additional laws in your state, and follow these rules carefully to maintain full FCRA compliance.

 Maintaining compliant procedures and processes is an integral part of doing business in the mortgage industry.  By taking the time to become comfortable with the laws and regulations, you will be better able to protect yourself and your business from lawsuits, fines, and penalties.

*(This is not intended to provide legal advice. You should consult your own company’s Human Resource and Legal departments and/or obtain legal advice).

~~Susan McCullah is the Product Development Director for Data Facts, a 23 year old Memphis-based company.  Data Facts provides mortgage product and banking solutions to lenders nationwide. Check our our website for a complete explanation of our services.