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Gaining Credit May Be Getting Tougher for College Grads

[Aug 1, 2007.]


A change in practices in the U.S. credit card industry may mean that it will be tougher than ever for college graduates to establish credit.

Here's the problem: In the past, college grads who hadn't gotten a credit card during their time in school would attempt to establish credit by becoming an authorized user on a parent's or spouse's card. As an authorized user, the college grad would benefit from the primary cardholder's good credit history. The practice offered young people a shortcut for gaining credit.

However, Fair Issac has come up with a new FICO scoring system that does not recognize authorized user accounts. The reason for the change is that credit repair companies have been mining authorized user accounts. The credit repair outfits have cardholders with good credit rent their credit histories to those who wish to improve their credit ratings. An official with Fair Isaac says that one of the big-3 credit bureaus plans to adopt the new scoring system in September. The remaining two are expected to follow suit by the middle of next year.

When the scoring changes go into effect, millions of authorized users may notice a change in their credit scores. Fair Isaac figures that nearly 1/3 of the 165 million consumers with a FICO score have an authorized user on their account.

Those who've signed onto accounts as authorized users but who don't have their own credit histories will see their credit scores evaporate. As a result, when they try to get their own credit cards, they may be turned down. The website Credit.com figures that 1% of all Americans will no longer have a credit score when the changes occur. The changes are likely to be felt most acutely by young people and married women. As a result, they could be forced to pay more for car loans and credit cards—if they are able to secure such credit lines in the first place.

Julie Ann Amos
August 1st 2007

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