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We all remember piggyback rides as children — you climbed on the back of a loved one and got a free ride — from a vantage point higher than your three-foot self was accustomed to. Piggybacking credit cards — to stretch an analogy — uses a similar premise: someone with no credit or poor credit becomes an authorized user on the credit card of someone with good-to-excellent credit. The credit bureaus use those on-time payments to calculate the “piggyback rider’s” credit score, and it gets a boost. Seeing the world from this new vantage point of better credit, that person can get better interest rates on loans and, with time, even get their own credit card.
For years, this was a perfectly legitimate way for parents to give adult children a head-start in the credit world, or for family and friends to help others who encountered hard times that hurt their credit. Then, companies decided it was a good idea to “sell” the privilege of becoming an authorized user on the credit card of someone with excellent credit. FICO caught on, and outlawed the practice. Now it’s back. But should you do it?
FICO has new practices in place to detect fraud. You can’t just climb on the back of anyone’s credit score, nor can you hand out “authorized user” privileges like they’re extra marshmallow chicks that won’t fit in the Easter basket. It is not legal to pay a company or individual to add you as an authorized user to their credit account to falsely boost your score — or to charge someone for that service if you have excellent credit.
But you can use piggybacking credit for its original purposes: to help loved ones, especially college-age children, working to establish a credit history.
Before you add an authorized user to your credit card, ask yourself these questions:
- Is the individual responsible enough to make payments to you, or will you be footing the bill for his expenses each month? If it’s the latter, you’re not teaching credit responsibility and you’re setting that person up for a life of struggling with debt.
- If the person doesn’t make the payments, can you afford to? Remember, it’s your credit score at stake. It makes sense to set a spending limit, well below the card’s limit, for the authorized user.
If the person isn’t a teen or young adult, but a working adult relative whose credit score has taken a hit, ask:
- How did they get into trouble in the first place?
- Have they changed their habits to be financially responsible now?
Of course, it’s possible to add someone as an authorized user but not actually give them a credit card. If you’re doing that, however, consider the consequences: Should you help to establish credit for someone you don’t believe is responsible enough to handle it?
Additionally, this could be considered fraud under FICO’s new guidelines for piggybacking. FICO permits “authorized users” on credit cards, limited to family members, and for those authorized users to see a boost in their score because of the credit card holder’s on-time payments. But someone who doesn’t possess the card is not technically an authorized user — it’s treading very close to those companies you can pay to make you an authorized user on a credit account to boost your own credit score. This is an illegal practice.
Piggybacking credit, used legally and responsibly, is better than a secured credit card, which may require a large deposit, or a store credit card, which has high interest rates and can only be used in a few places.
If you want to piggyback on a loved one’s credit, you should consider the questions above, as well. Are you ready to handle credit in a responsible way? If the answer is yes, there are a few things you should know
- Building your credit as a piggyback user will take longer than it used to
- Only TransUnion uses the new model, which takes piggybacked credit into account on your credit score
- You can only be added as an authorized user to the card of a friend or relative; they can’t charge you for the privilege
- The best way to boost your credit score or establish a credit history is by opening accounts in your own name and making timely payments each month.