Wheatworks Blog: Financial Matters

The Credit Card Bubble Blog at http://www.creditcardbubble.com is a place to consider the impact of the credit card bubble on individuals and the economy. So jump in! Share your thoughts, ideas, tips and forecasts.

If you’ve watched the news lately, you’ve heard about the housing bubble. You’ve also heard about the credit bubble. One thing that hasn’t been mentioned too frequently yet is the credit card bubble.

If you heard about it in passing, the comments were similar to, “home owners are maxing their credit cards to pay for basic necessities like food and clothing.” Or maybe you’ve heard the astounding statistics about the number of credit cards the typical person has and the average credit card debt they carry on their cards.

While it has not received as much attention as the housing bubble or the credit crunch, you’ll hear more about the credit card bubble in the future. And it probably won’t be good news.

Fair Isaac (the company which developed the FICO credit score) has announced their next version of FICO scoring will no longer consider authorized user accounts. This change is being made to address an industry concern about the impact of authorized user accounts on credit risk.

An authorized user account is one in which a person other than the one responsible for paying the balance is allowed to make purchases with a credit card. Authorized users are usually spouses or college students who have little or no personal credit.

Authorized users can improve their credit score is an account’s primary cardholder maintains a low balance and pay on time over a long period of time.

While authorized user accounts have been around for a long time, it’s the current concern over credit renting that Fair Isaac is addressing with the new scoring method. Credit renting is the act of allowing someone with a poor credit score to become and authorized user on the account of someone with a good credit score. The person with a good score makes a few bucks and the person with the poor credit score boosts their score because they’re an authorized user on an account with a good score.

The new scoring method will be introduced in few months to one of the three major credit reporting agencies. The other two will begin using the new FICO scoring method in 2008.