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FAQs Regarding New Credit Formulas

Aug 22, 2008
Business owners must consider how these changes could effect their business scores, because of the major impact it could have on their ability to take out loans, finance projects, or pay employees. Consider your options and discuss them with a financial adviser to figure out what is the best plan for you.

How will these changes impact consumers?

When consumers who are considered authorized users on credit accounts receive their new credit score, it may be significantly lower. This drop may increase depending on how many accounts they are an 'authorized user' on. Therefore, these consumers will essentially be losing some of their credit score. There is one group that is positively affected, however. This is the group of users who have late payments or high balances on their credit accounts. These users will actually see a fairly significant increase in their credit scores. This is not to encourage this type of account, however.

What are authorized users on credit accounts?

Quite often, creditors will allow their primary users to add secondary users to their credit accounts without checking the second person's credit. Although they do not run a credit check, the account user becomes a valid user of the account and the credit account shows up on their credit checks. The authorized user is not liable for any debts incurred by any user on the credit account, which is one of the main reasons they are now being removed from the accounts.

How many people will be impacted?

It is estimated that nearly one third of all Americans has at least one authorized user account on their credit report. This means that nearly one hundred million Americans will be affected by these new credit score formulas. It is important for people to take action to prevent their score from dropping. A significant drop in credit score of nearly one hundred million Americans is a fairly detrimental number and could yield a negative effect.

Why has FICO decided to make this change?

FICO is changing this policy because it is being largely companies that fix individual's credit problems. In many cases, companies illegally sell access to authorized credit users account, which improves the credit score but harms the user. These costs would often be upward of several thousand dollars. This was a problem that had to be dealt with.
How will people establish their credit without authorized user accounts?

Although being an authorized user was once a great way to build or increase your credit, it is no longer a feasible option. Business owners who are concerned with their credit scores should probably try opening their own line of credit and keeping it intact. This can slowly build credit. One good way to do this is to buy a card that is only used for a few specific things a month, that you were already paying cash for. Setting aside that cash and using it to pay off the card will establish credit. Some banks even offer a credit line of around two to five hundred dollars as an overdraft protection. When the account overdraws, money is withdrawn from your line of credit and when you pay it back it builds your credit. Sometimes people with no or little credit start of with gas credit cards as well.

Business owners must consider how these changes could effect their business scores, because of the major impact it could have on their ability to take out loans, finance projects, or pay employees. Consider your options and discuss them with a financial adviser to figure out what is the best plan for you.
About the Author
'Scott Letourneau is the CEO of Fast Business Credit, Inc. and has a valuable free guide to help business owners get access to capital plus a new program to help business owners understand the new FICO credit formula! Go to our Business Credit Program page for powerful details!
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