New credit-scoring formula could affect students’ credit scores

Kelly Gulbrandson

A new formula used to calculate credit scores will affect some peoples’ credit scores, including some college students’.

Fair Isaac Corporation, which calculates credit scores, changed its formula in September to no longer consider authorized user accounts in consumers’ credit scores. This move could decrease a person’s score or erase his or her history, depending on the status of the account.

Emily Davidson, communications director for a credit counseling Web site credit.com, said through the authorized user account system, students could be listed on their parents’ credit card account, but not be legally responsible for the debt.

That account shows up on students’ credit reports, often increasing their credit scores.

“If you are an authorized user on your dad’s account and he’s had good credit for 10 years, you’ll have had good credit for 10 years,” Davidson said.

Political science senior Becky Jergenson said she was an authorized user on her dad’s account when she was studying abroad, but is no longer on the account.

“It was a good way to build my credit,” she said.

Jergenson said she never received a bill for the credit card she had under her dad’s account, and only used it two times while overseas.

Davidson said while authorized user accounts will still exist and show on credit reports, they won’t be considered in credit scores.

However, Davidson said, it might take until the beginning of next year to go into effect, depending on which bank or institution handles the account.

The major reason for dropping these accounts, Davidson said, was “piggy-backing,” where people could apply for a home loan with an authorized user account listed on their report, but weren’t actually able to pay the mortgage.

“They also changed their formula because it never really made sense in the first place to give full credit to someone who was not legally responsible for the debt,” Davidson said.

She also said some “fraudster” companies find people with good scores and long credit histories, and pay them to add clients with little or bad credit as authorized users of their accounts.

The credit repair agency gets money for that service, Davidson said.

Catherine Solheim, a professor of family social science, said many students and adults don’t know their credit scores.

She said building credit is easier now because of multiple ways for students to obtain it.

“I usually see a small percent of students who don’t have a credit card,” Solheim said.

Authorized user accounts open an avenue of communication between parents and their children, she said, allowing them to stay connected.

Generally, it would be better for students to have a small balance on one or two of their own cards and pay it off every month, Solheim said.

First-year music education student Luke Price said he doesn’t have a credit card or student loans. He said he is afraid of getting a credit card, but knows he will have to in the next few years.

While he doesn’t know his credit history or score, he said he can see the good and bad aspects of an authorized user account.

“It’s a good way to build credit, but giving credit history to someone who hasn’t merited it doesn’t sound right,” Price said.