Articles - Archived Feature

Will Credit Scoring Changes Affect You?

The news has been so dominated this year about the downturn of the financial markets that you may have missed talk about a major change to the way your credit score is being calculated. It turns out the Fair Isaac Corporation—the company that invented the FICO score, which is used by many financial institutions to grant or deny credit—has updated their scoring formula and about 30 percent of American consumers will be impacted.

This change means consumers will no longer benefit from being named an "authorized user" on an account. Credit card issuers often allow consumers to add other people to their account as an authorized user without running a credit check. This user can then use the credit card and have the account record appear on their credit report, allowing them to build credit without the associated liability of payments.

If you're unsure as to whether you are listed as an authorized user on someone else's credit card, you can verify it by checking all three credit reports online for free at www.annualcreditreport.com. Look at the credit card accounts listed on your credit reports, noticing whether you are listed as an authorized user, a joint cardholder or the primary holder. Any account where you are listed as an authorized user will stop being counted in your credit score, meaning your score will likely drop.

It's important for parents to think about how this change may affect their children. That's because authorized user accounts are often used by parents to help their kids quickly establish a credit history. College students and recent graduates should also be aware that these authorized accounts (usually the oldest on their credit reports) are now going to be ignored.

To avoid potential problems with this change, consider becoming a joint cardholder on any account where you are currently listed as the authorized user. This means you will have equal liability for both the payments and the debt. You could also open a new account, such as a credit card, in your own name.

Remember, as a local government employee, you benefit from being able to join Local Government Federal Credit Union, which provides members free financial counseling to help them maintain or improve their credit scores. Plus, we offer a low-rate, no-fee Visa credit card perfect for anyone looking to establish credit. Learn more at www.lgfcu.org or by calling us at 877.367.5428.