Piggybacking credit is the practice of becoming an authorized user on another person’s credit file when your credit history is new or damaged. This strategy is not new, as parents have long allowed their children to piggyback on their credit accounts to help them begin their credit journey.
Many people turn to credit piggybacking if they don’t have a credit report yet, or when there’s not enough credit history to produce a credit score.
It’s important to note that credit piggybacking may be more useful to establish credit than positively affect damaged credit. Piggybacking should not be considered a long term solution for credit score issues.
How Does Credit Piggybacking Work?
Piggybacking is also known as becoming an authorized user. It simply means you are added to another person’s credit card, and, consequently, their payment history is added to your credit report as well as their own.
Someone with no credit history, for instance, could piggyback on a parent’s credit card that has been open for 15 years. In this case, the credit report of the piggybacker might reflect an active credit account for that same period of time as well.
If you piggyback on another person’s credit, you may notice an impact on your credit history if the primary cardholder keeps their account balances low and makes payments on time. Of course, the opposite is true as well; if the primary cardholder defaults on an account or fails to make timely payments, your credit scores may be damaged.
Do your own research and don’t rush into credit piggybacking because it doesn’t always work. The credit industry has become wise to the practice and is attempting to close the loophole.
To that end, many credit card companies do not report authorized users to the credit bureaus. Also, some creditors only report the account to the bureaus if the authorized user actually has their own credit card on the account. Credit scoring models are getting better at detecting when an authorized user is legitimately sharing the credit card account, and when they are piggybacking for the sole purpose of improving their credit score.
Make sure the credit card company reports to the credit bureaus before spending the time and effort to become an authorized user on someone’s account.
Two Ways of Piggybacking Credit
Here are the two ways piggybacking can occur on someone else’s credit card accounts:
- Traditional Piggybacking
Typically, traditional piggybacking refers to a child becoming a user on a parent’s credit card account, but it could also mean piggybacking on a close relative or friend’s credit card account.
Often, the cards of the secondary user are only to be used for emergencies. Or they may be used to make small purchases as a way of learning how to handle credit.
- For-Profit Piggybacking
Watch out for online piggybacking products which target consumers wanting to address past credit issues for a fee, of course, These companies promise to pair you with strangers who possess verifiably excellent credit.
Primary cardholders will add you to their credit card account as an authorized user for a couple of months. During this period, the stranger’s credit account should appear on your credit report.
The idea is that you’ll use this period of time to try to qualify for a credit card or loan on your own. With these products, you won’t receive a physical card and you can’t charge anything.
The fee for these products can be expensive, sometimes more than $1,000. Another drawback is that you have to disclose personal information, including your full legal name, Social Security number and date of birth.
Once the piggybacking term is complete, you will be deleted as an authorized user. Unless you’ve taken other actions involving your credit, any credit impact you’ve experienced from piggybacking will likely revert to where it was originally.
Does Credit Piggybacking Work?
If you decide to piggyback on someone’s credit, there is no guarantee that you can or will see a positive impact on your credit history.
When piggybacking fails, it is usually for one of two reasons.
- Creditors don’t always report you as an authorized user to the credit bureaus.
Even when the credit card companies do report to the credit bureaus, they don’t always report activity in a dependable way. For example, your charges and timely payments may show up on the primary cardholder’s credit report but not your own. That’s why it’s important to call the credit card company and inquire how they will report your credit use before you start piggybacking.
- You could actually damage your credit if you piggyback with a careless cardholder. Take caution to only add yourself as an authorized user only to accounts in good standing. .
Alternative Ways to Establish Credit
For all the trouble, credit piggybacking delivers minimal impact on your credit, and that’s when it actually works. Consider other ways to establish credit that have a longer-lasting impact. Perhaps the best ways to establish credit is to apply for a credit-builder loan or a secured credit card.
Credit builder loan:
With these loans, the lender deposits the loan funds into a savings account. You make monthly payments, which the lender reports to the credit bureaus. Once the term is complete and no more payments are required, the funds are released to you.
Secured credit card:
A secured credit card is a solid option for those with no credit. These cards require you to deposit your own money, which serves as both your collateral and your credit line. As you make payments, the credit card company reports the activity to the credit bureaus.
These two options allow you to establish credit without the risks and fees that come with piggybacking.
The Bottom Line
The practice of piggybacking credit is likely more effective at establishing credit than if you were trying to sort our some credit mistakes from the past. Even then, you run the risk of hurting your credit if the primary cardholder fails to make timely payments or doesn’t use the card responsibly. There are better options to establish credit which are free.
As you work to establish your credit history, monitor your credit report to identify where your financial strengths and weaknesses lie and make adjustments accordingly.