Revisiting FICO 08 Piggybacking

Your money is important, and so I want to make sure I’m telling you the truth in every instance. A few months ago I wrote an article called What You Need to Know About the FICO Update, which contained some news about the process of “piggybacking”:

Not too long ago companies started offering to add someone with poor credit as an authorized user on an account belonging to someone with better credit. After a while, the credit rating for the less fortunate person would improve. Under the new formula, this sort of—let’s be frank—trickery will not be rewarded. Spouses and children, however, will not be penalized in the same way.

Throughout that day, a commenter named Bill tried to tell me I was wrong, and since the e-mail address he used was linked to a company that provides such a service (he didn’t make the address public, so I won’t, either), I still had my doubts.

And I’ve had doubts ever since, in both directions. I thought it’d be worthwhile to wait a few months and see if any news outlets made retractions or corrections to the initial flood of reports that FICO 08 will no longer reward piggybacking. So far they haven’t. Here’s one from May 13th that says the same thing again.

So, I thought, “Well, why not just see what Fair Isaac (the FICO people) say?” And after searching for “fico 08” on their Web site, exactly one useful page shows up: Fair Isaac Innovation Will Restore Authorized User Accounts to Calculation of FICO 08 Scores.

What that article says is this:

scientists have discovered a way to restore authorized user credit accounts to the calculation of FICO® 08 credit scores while materially reducing any potential impact to the score from tampering. Fair Isaac is now adding the patent-pending technology advance to its FICO® 08 formula. The company estimates that more than 50 million U.S. consumers are legitimate authorized users on another person’s credit card.

It’s that last phrase that I think is the most important: authorized users on another person’s credit card. So, if you have the authority to charge something to a credit card that also has someone else’s name on it, that’s not piggybacking. That’s being an authorized user, and your credit score will benefit from being associated with that person.

In the descriptions I’ve read of services that provide piggybacking, you don’t get access to the credit line or the authority to charge anything on a stranger’s card. Of course you don’t; that would be absurd. I think this is the gap where FICO’s scientists are able to distinguish between authorized users and piggybackers, and why my original conclusion still stands.

Here’s a good article from Bankrate (that updated a previous article) which explains FICO’s:

1. original decision to ignore all authorized users
2. the protests (from people like Bill)
3. and the subsequent tweaking that FICO made to keep authorized users, but still ignore piggybackers

Here are a couple of key phrases:

• Legitimate authorized users, such as spouses, parents and children, have relationships with the primary accountholders and reasons to share access to the accounts.
• Fair Isaac said lenders complained that using FICO 08 would inhibit compliance with Federal Reserve Regulation B, which requires lenders assessing a married person’s credit risk to consider the credit history of accounts shared by the spouses.
• Fair Isaac is keeping the specifics of the new analytic approach secret but says it has found a way to restore authorized-user accounts to the formula but also reduce the impact of piggybacking.

To conclude: authorized users = spouses, children, people with a relationship to the cardholder. Piggybackers = unauthorized.

I don’t want to riddle your screen with links to each news outlet’s report, so I’ll just direct you to Google News for more. Check out a comprehensive list of articles from 2009 that all agree. (Well, they all agree, except for the ones that are reproductions of press releases from companies that offer piggybacking services.)