How to Build Piggybacking Credit

Some people think of piggybacking as something illegal and they even run far from it, but that is not really the case here. It’s an arrangement in which one party attempts to get the benefit of the good credit rating of another by being added to his or her account.

Or in some cases, you can even be added to more than one. Once you do, you’ll get the benefit of that person’s credit performance on the particular card. And not surprisingly, it’s a pretty common arrangement.

In this article, we will consider what piggybacking is and how you can build your piggybacking credit without stress. Let’s get into it.

• What is Piggybacking?
• How Much Will Piggybacking Raise my Score?
• Does Piggybacking Really Work?
• How Can I Build my Credit?
• Does Piggybacking Affect Credit?
• How Can I Raise my Credit Score For Someone Else?
• What Are Some Risks With Piggybacking?

What is Piggybacking?

Where credit cards are concerned, piggybacking is becoming an authorized user on someone else’s credit card.

Read Also: Top 5 Credit Repair Software

The basic idea is that you may not be able to get a credit card on your own, or you may want to take advantage of the other person’s good credit to help build your own.

As an authorized user, you’re able to use a credit card to make purchases and other transactions.

However:

You’re not responsible to make the monthly payments.

In that way, piggybacking doesn’t actually measure your own loan payment history, but rather that of the primary cardholder.

Still, the authorized user status will be considered by the credit bureaus, as long as the credit card issuer reports the arrangement to the agencies. It won’t have the same effects as having credit cards in your own name, but it’s the next best thing.

Person-to-Person Piggybacking

This is the most common form of piggybacking.

Simply, you become an authorized user on one or more credit cards held by a family member or other relative. In most cases, it will be a young person looking to build credit by becoming an authorized user of his or her parent’s credit cards.

The arrangement not only gives you the ability to use the relation’s credit card just as you would any other credit card, but it can also help you to build credit. For example, if the primary cardholder has good or excellent credit, you’ll get the benefit of that status.

One of the major problems with building a credit score early is the lack of credit history.

An important advantage of authorized user status is that you’ll get the benefit of the length of time the credit card account has been in existence.

So, if the primary cardholder has had the account for say, seven years, it will appear as though you have a longer credit history than you do.

It won’t have the same impact as having a credit card in your own name, but it will add an additional credit reference, and that will lift your score at least somewhat.

Naturally, the entire person-to-person piggybacking arrangement hinges on the strength of the primary cardholder’s credit.

We must stress:

The primary cardholder should have good or excellent credit. If they have fair or poor credit, that will likewise flow over to your credit report, especially if it’s on the credit card you’re piggybacking on.

For-Profit Piggybacking

Since there are for-profit businesses providing just about every service imaginable, it should come as no surprise that there are companies offering to piggyback — for a fee.

Often, they’re companies that focus on credit repair, using piggybacking as one of their strategies.

These are companies that work with people who are looking to either build or improve their credit and who don’t have individuals whose credit cards they can piggyback on. (That can happen either because family members don’t have a good credit standing themselves, or because they simply refuse to extend authorized user status to anyone.)

For-profit piggybacking largely accomplishes the same objective that the person-to-person variety does.

But it comes with four significant differences:

1. You’ll pay a fee for the arrangement.
2. The primary cardholder will be a complete stranger.
3. The arrangement is temporary, which will vary by company.
4. You’ll need to provide personal information to the for-profit piggybacking company.

Drawbacks

Let’s take a closer look at each of the four significant differences between for-profit piggybacking and person-to-person piggybacking.

As good as the arrangement may seem, you have good reasons to have second thoughts about it.

The fee alone will probably stop most people from taking advantage of for-profit piggybacking.

It can range anywhere from a few hundred dollars to a few thousand dollars. If you don’t already have established credit, or you have poor credit you’re looking to improve, there’s an excellent chance you won’t have the money to pay that kind of fee.

What’s more:

A single piggybacking arrangement is unlikely to be sufficient to seriously improve your credit score.

You may need two or more, which will raise the cost substantially.

You’ll also need to be comfortable being on an account with a complete stranger.

Unlike a person-to-person piggybacking arrangement, you won’t be able to use the account for payment purposes. At the same time, you’ll be completely dependent upon the credit behavior of the stranger.

Since the arrangement is temporary, the credit score benefit will disappear once the piggybacking ends.

Unless you’re able to build credit of your own in the meantime, you’ll be left exactly where you started before the for-profit piggyback.

Finally, it should go without saying that providing personal information to a company engaged in a questionable practice like for-profit piggybacking comes with certain risks.

At a minimum, your information may be shared with other service providers. In a worst-case scenario, you could become a victim of identity theft.

How Much Will Piggybacking Raise my Score?

A 2010 Federal Reserve study found that thin credit files (meaning those with few accounts reporting) had one of the largest score improvements from piggybacking, with score gains averaging between 45 and 64 points. Individuals with a short credit history such as two years or less also had a large score increase. Their average score increase was 22 points. There are significant benefits if you fall in either of those categories or if your current score qualifies you as a subprime borrower.

While it can help some people, piggybacking depends on the credit card company. Not all credit card issuers will be helpful. Regulation B specifies that banks must report authorized users who are spouses; so piggybacking depends on whether a bank also reports authorized users who are not spouses. Some banks will give you a choice, offering to not report account activity on an authorized user’s credit file if they are not the account holder’s spouse.

Confirm how your credit card issuer treats authorized users by asking which credit reporting bureaus it reports authorized users to and what type of activity will it report.

Does Piggybacking Really Work?

To understand how and why piggybacking works, you need to know the basics of credit scores. Your credit score is affected by your payment history, how much of your available credit you’re using (known as your credit utilization), the length of your credit history, whether you’ve recently received new credit, and your credit mix. Basically, it’s a rating of how you’ve managed your debt.

When you become an authorized user, a few things happen. The account will show up on your credit file, but there will be an indication for future lenders that you are an authorized user. Second, your overall credit limit increases, which could lower your credit utilization ratio if the balance on the card you are piggybacking onto is kept low. Third, it changes the length of your credit history.

Depending on how long the account has been open, you might increase the length of your credit history or shorten it. Longer credit history is a positive because it means you have more experience in managing credit. Fourth, you get the cardholder’s (presumably) good record of on-time payments added to your credit report.

Piggybacking legally exists because of the serious obstacles women faced, decades ago, to getting their own credit cards or establishing independent credit histories when they used (and helped pay off) cards issued to their husbands as the primary cardholder.  In 1974, Congress passed the Equal Credit Opportunity Act making it unlawful for creditors to discriminate on the basis of race, religion, sex, or marital status. To implement that law, the Federal Reserve issued Regulation B.

Among other things, Reg B requires creditors to report authorized users who are spouses of a cardholder to credit reporting companies and to consider the history from joint and authorized user accounts when making a credit decision for either spouse.

There’s a significant loophole, though. When reporting an authorized user, creditors don’t specify whether that user is actually the spouse of the cardholder. This allows an authorized user to be a child, a cousin, a friend, a significant other, and, in the case of for-profit credit repair organizations, a stranger and still benefit from authorized user status.

How Can I Build my Credit?

Here are other ways you can build your credit that provides longer-lasting results than piggybacking:

1. Apply for a secured credit card: A great option for those with no credit history, a secured credit card is a card that requires you to place a deposit with your own money as collateral. The deposit acts as your credit line. As you make your payments, the card company reports your payments to the credit bureaus.
2. Take out a credit-builder loan: When you take out a credit-builder loan, the lender sets aside the funds in a savings account and you make monthly payments. The lender reports your payments to the credit bureaus, and at the end of the loan term, the funds are released to you.
3. Boost Your FICO^® Score^☉ : Get credit for the utility and telecom bills you’re already paying by signing up for Experian Boost™^† —a free tool that can increase your FICO^® Score instantly.

With these options, you can steadily increase your credit scores over time without the cost of a piggybacking service.

As you work to improve your credit history, it’s important to monitor your credit report and make adjustments to your financial behavior so you can see long-term results. Here are the five actions you can take to help positively manage your credit history.

1. Pay all of your bills on time.
2. Keep your credit utilization below 30%. With each of your revolving credit accounts, such as credit cards and lines of credit, make sure your balances stay low relative to the credit limits on the accounts. For the best credit scores, keep your utilization under 10%.
3. Diversify the types of credit accounts you have (credit cards, personal loans, auto loans, and so on) to create a good credit mix.
4. Minimize the number of hard inquiries in your credit file over a short period of time. Too many inquiries can hurt your credit scores.
5. Keep your accounts in good standing to avoid having negative information appear on your credit reports, such as late or missed payments, foreclosures, and collection accounts.

Does Piggybacking Affect Credit?

Becoming an authorized user with a trusted friend or family member can be a solid way to build your own credit. Over time, you’ll build your score and become eligible for your own card accounts, then use those to maintain responsible credit habits. 

“A person would build credit with other accounts and have their own history established by the time that authorized user account is removed,” says Griffin. “That new history would offset and kind of overtake that authorized user account,” he says. 

It can take about six months to get your first credit score, so you might have at least six months to a year of staying on the authorized user account.

You can also build your credit via new tools designed to help you get started. “Once a person has a credit history, it’s a foot in the door to help break cycles of predatory lending,” says Griffin.

For example, Experian Boost and TransUnion’s eCredable Lift help you add up to two years of payment history for your utilities and other regular bills, and FICO’s UltraFICO Score takes banking history and more alternative information into account, all of which can increase your credit score.

Note that different credit bureaus calculate your score differently, especially when you use these programs. Your lender might use information from a different credit bureau that has different scoring than the ones these methods affect.

You could also become a primary cardholder, which counts for more on your credit score, with a secured credit card. “You can get a secured credit card where you basically give a security deposit to a bank or credit card and they put it into a bank account,” says Red. 

The issuer uses the deposit as collateral in case you don’t pay your balance, and you’ll typically get it back when you close your account in good standing or upgrade to an unsecured credit card once your score improves.

The important thing is to start building your credit before you’ll need it, says Red. 

“One of the big challenges I encounter is people who realize they need credit before they start building it. Since you can’t get a time machine and go back and build your credit, you have to start building before you really need it.”

How Can I Raise my Credit Score For Someone Else?

Becoming an authorized user on someone else’s credit card account allows you to build credit without the same responsibility you would have if you were to open your own credit card account. Here are some of the benefits:

You’re not liable for the debt. Since you’re not the primary or a joint account holder, you’re not held responsible for paying off the credit card each month, even if you were the one who made the purchase. What’s more, the credit card company can’t come after you if the primary account holder defaults on his or her payments. Of course, you’ll need to pay back your family member or friend if you choose to use the card for purchases. Otherwise, it could damage your relationship.

The credit card will show up on your credit report. If the credit card issuer reports authorized user accounts to the credit bureaus, you’d get all the positive history on the account. So, if your parent has had the same card for the last 10 years and adds you as an authorized user, you’ll instantly have 10 years’ worth of account history on your credit reports.

As such, it’s essential that you work with someone who uses credit responsibly. “If you become an authorized user on an account that’s charged to the max every month, that’s not going to be very beneficial to you,” says Rod Griffin, director of consumer education and awareness at Experian. “If it’s an account that’s not paid on time, that’s even worse.”

Your exposure to negative history is limited. Your credit score may dip if the primary cardholder racks up a high balance. But if that person stops making payments for a while, you can request that the issuer remove you from the account. Though, you may also need to confirm with the credit bureaus that they’ve removed the account from your report.

What Are Some Risks With Piggybacking?

Authorized user status can help you in the right situation, but there’s no guarantee it will provide you with the results you want. Here are some of the cons to consider:

Piggybacking isn’t as beneficial as getting your own account. When FICO released the FICO 8 scoring model in 2009, it announced that authorized user accounts would have less impact on consumers’ credit scores than before. This shift was primarily an attempt to discourage people from using paid piggybacking services.

That said, lenders aren’t required to use the most up-to-date scoring models, and it’s possible that some still use previous versions. But if you can, getting your own credit card or a loan to boost your credit score can provide you with more certainty.

You’re at the mercy of the account holder. If the primary cardholder doesn’t use the card responsibly after adding you as an authorized user – such as by racking up a high balance or missing a payment – it could reflect poorly on your credit report.

If things get really bad, remember that you can take yourself off the account. But removing the authorized user account from your credit history will remove both the positive and negative information associated with the account. So, if you haven’t taken the opportunity to build your credit in other ways, you’ll end up back at square one.

It won’t fix other negative items on your credit reports. Adding positive information to your credit reports can help boost your credit score, but it’s not going to make the negative items go away.

Read Also: How Much Does a Credit Repair Service Cost?

“If you have serious delinquency issues or collection accounts,” says Griffin, “being added as an authorized user isn’t going to offset those problems.”

So, if you want to rebuild bad credit, take a look at your credit reports to see what’s causing it. Then, focus on addressing the negative items first, including getting caught up on payments or paying down high credit card balances. Once you’ve done these things, an authorized user account may help make more of a difference.

Conclusion

Piggybacking can be a good credit boosting method for individuals with thin credit files or low scores. It’s also useful for people who don’t trust themselves to build their own credit rating with a credit card.

This technique won’t do much for someone who already has favorable credit. The interest rates that they might receive won’t improve significantly since they were low credit risks to begin with.

If you’re considering piggybacking, you may try improving your score in other ways first.