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

Recent Housing News

• Mortgage Rates Unmoved
  Prospective homebuyers received some encouraging news recently, thanks to the fact that rates on 30-year mortgages stayed steady. The decision to maintain the status quo might have been surprising to some, given all the concerns being raised about inflation at this point in time. [01.08.07]


• New Credit Card Practice Under Scrutiny
  Some universities have been trying to cut costs by issuing university business credit cards to their employees. The practice can be less expensive than other means of trying to pay school bills. However, Arizona universities have run into a stumbling block in their effort to promote cost efficiency: financial abuse. [July 31st 2007]


• New Credit Card Scam Uncovered
  Internet experts say that credit card thieves are employing a new tactic: making donations to charity using pilfered charge cards. The strategy may enable thieves to steal more money than was possible in the past. [July 31st 2007]


• Consumer Borrowing Rises Dramatically
  The Federal Reserve is reporting that consumer borrowing skyrocketed in May—the greatest increase in credit card debt in 6 months. Consumer credit jumped 6.4%, which was a monumental increase over the 1.1% jump in April. In fact, the increase in May was just about twice the amount that financial observers were expecting. [July 31st 2007]


• Credit Card Companies Offer New Insight Into Consumer Spending
  The credit industry has uncovered some surprising news about consumer spending. Apparently, young people are going to become bigger spenders than their Baby Boomer parents. [July 25th 2007]


• Reasons for Bankruptcy are Varied
  A new study indicates there are a myriad of reasons behind consumer bankruptcies. The report shows that the vast majority of respondents, 63%, said they were overextended on credit. [July 25th 2007]


• Fed to Protect Homeowners from Mortgage Abuse
  The chairman of the Federal Reserve Board is determined to ensure that prospective homebuyers are shielded from lending practices that could be considered abusive—a move that some legislators say is long overdue. [July 25th 2007]


• New Hope on the Credit Card Front
  While the housing market appears to be sluggish and the overall economy may appear to be a mixed blessing, the outlook appears to be bright for credit card companies and their cardholders. [July 19th 2007]