Written By: Stacey Sprain, Op-Ed Writer
When a credit account owner permits another person, typically a family member who is managing credit for the first time, to have access to and use of an account, the user is referred to as an authorized user of the account. This practice is intended to assist related individuals in legitimately establishing a credit history and credit score based on the account and payment history of the account owner, even though the authorized user is not the account owner.
AUS takes credit report tradelines designated as authorized user accounts into consideration as part of the credit risk assessment. However, credit reports containing authorized user accounts require additional evaluation regardless of any Automated Underwriting System (AUS) recommendation because authorized user accounts contribute to the calculation of the borrower’s credit score. If the borrower’s credit history contains minimal credit or derogatory credit with the exception of authorized user accounts, the credit score can be considered artificially inflated and may not be a true indicator of the borrower’s true financial credibility.
Authorized User accounts cannot be counted toward minimum tradeline requirements specified for particular products unless the borrower provides cancelled checks or alternative evidence that he/she has been utilizing and making timely payments on the account.
In addition, authorized user accounts cannot be omitted or excluded from the borrower’s qualifying ratios unless
• the borrower provides evidence that he/she has no legal obligation to repay the debt (a letter from the creditor or a credit supplement from the credit bureau would be acceptable); or
• the borrower provides evidence that the primary account holder has been making all payments on the account.
Analyzing Authorized User Accounts
If the primary account holder is another borrower on the transaction no further action is required.
If the borrower has a well-established, long term, non-derogatory credit history with numerous bona-fide current tradelines reporting timely payment histories no further action is required.
If the primary account holder is a non-borrowing spouse or any other person who is not a borrower on the transaction and the credit report shows any of the following characteristics, it may indicate the report is not an accurate reflection of the borrower’s credit profile and can also indicate that the borrower’s credit may not meet the lender’s or agency’s minimum credit guideline requirements:
• There is a significant difference in credit utilization between the authorized user accounts and primary credit lines;
• There is a significant difference when comparing the late payments of the authorized user accounts to the primary credit lines;
• The credit limits on authorized user accounts are significantly higher when compared to the primary credit lines.
• The primary credit lines show both high utilization and excessive past late payments when compared to the authorized user accounts
• The primary credit lines show both high utilization and significantly lower credit limits when compared to the authorized user accounts
• The primary credit lines show both significantly lower credit limits and excessive past late payments when compared to the authorized user account
• The primary credit lines show high utilization, excessive late payments, and have significantly lower credit limits when compared to the authorized user accounts.
Careful attention and analysis must be exercised when authorized user accounts are present on the borrower’s credit report-especially when they are open and rated current. Be sure to refer to your lender’s guideline requirements for authorized user credit as the lender may have special credit overlay requirements and/or restrictions in place. If AUS findings address the authorized user accounts, be sure to follow the guidance and requirements listed in order to meet the documentation requirements.
About The Author
Stacey Sprain - As an op-ed writer, Ms. Stacey Sprain is currently a NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). With over 15+ years of mortgage banking experience, Stacey is also a Quality Control Manager for a major mortgage lending institution.