Credit-Rating Standard Tightens

Fair Isaac Corp., the company behind FICO credit scores, is shutting down a fast track to a better credit rating.

Starting in September, consumers who are added as an authorized user on someone else's credit card will no longer be able to benefit from that card's credit history. The change reverses the current practice, known as piggybacking, which treats all authorized users the same as the cardholder.

Here's how it works: Say a mother has a gold card with a $10,000 credit limit and a typical $1,000 balance that she's paid on time since 2000. If she added her 18-year-old son as an authorized user today, his credit score would get a quick boost, because it would look like he, too, had a card with 90% of the credit line free and a perfect seven-year history.

Credit scores improve when a person keeps balances low relative to limits and pays bills on time for long periods.

In an interview last year, a Fair Isaac spokesman said the company allowed the quirk because it didn't have any proof that people were gaming the system to lenders' detriment. But after researching the market and discovering a number of companies that sell the right to become an authorized user on complete strangers' credit accounts, Fair Isaac decided it was time to close the loophole, according to Ron Totaro, vice president of global scoring solutions at the Minneapolis-based company.

Seasonedtrades.com and Instantcreditbuilders.com, which sell the right to be an authorized user, didn't respond to requests for comment about how the decision would affect their operations. Such services have been known to charge customers $1,000 to $3,000 and to promise to boost scores by as much as 200 points. (FICO scores range from 300 to 850.)

Fair Isaac estimates roughly 1% of consumers will be affected by the change. The decision is part of a broader overhaul to the model used to generate FICO scores. The company plans to introduce its new product, FICO 08, to one of the major credit bureaus -- Equifax, Experian or TransUnion -- in September and to roll it out at the remaining two early next year.

Fair Isaac, which fine-tunes scoring models every couple of years, says the FICO 08 model will heighten lenders' abilities to make predictions about people with scant credit histories.

Families who employ piggybacking to help children or new spouses jump-start their credit have other ways of achieving their goal. Mr. Totaro says joint users on an account, like authorized users, get the benefit of the card's entire history, but joint users are accountable for the debt on the card while authorized users are not. Additionally, family members with good histories can cosign loans to help loved ones secure credit.