Credit Piggybacking

Credit PiggybackingCredit piggybacking is an excellent way for family members to start building credit history, repair credit history or fix credit score. It is absolutely legal (amongst family members) and the Fico Score Formula acknowledges it.

Credit piggybacking isn’t a new practice. For years, parents have done it to help their children get a jump start on their credit. Recently, piggybacking came under heavy criticism because the practice was abused by “credit clinics”. Still, it continues to be the best way to build credit amongst family members.

What exactly is Credit Piggybacking?
Similar to the childhood game of being carried around on someone else’s back, credit piggybacking is using someone else’s credit card account to build good credit and raise your Fico score.

When you are being added as an authorized user on someone else’s credit card you get your card for that account with your name on it, but the primary card holder remains liable for all payments.

The account will appear on both credit report – yours and that of the primary card holder. Whenever the primary card holder makes timely payments – it appears on your report, builds up your credit and improves your score.

Is it legal?
Yes. According to Fair Isaac (the creator of Fico), “FICO allows consumers to benefit from their status as authorized account users. The [authorized] account will appear on your credit report and will be treated no differently by the FICO scoring formula than any other accounts that appear on your report“.

Can piggybacking hurt the primary credit card holder’s score?
No. It has absolutely no effect on the primary credit card holder. Naturally, the primary card holder is responsible for making the timely payment, whether you or he/she made purchases with the card.

Does piggybacking have any drawbacks?
It may have. If the primary card holder encounters financial problems and the account becomes delinquent, naturally, the piggy backer’s score will take a hit too.

Therefore, I always advise piggy backers to do a follow-up after 2 years or so. Assuming their credit has built up/recovered enough for them to get their own credit card – cancel the authorized user. Keep the cancelation record forever!

Who can benefit from being an Authorized User?

Legitimate authorized users include spouses, parents, children, and anyone who would have a legitimate relationship with the primary account holder and a reason to share access on their account.

While Fair Isaac won’t release the details on how they determine a legitimate authorized user versus a complete stranger, it is known in the industry that they have state of the art algorithm that does a pretty good job at it.

That having said, a primary credit card holder can add ANYONE as an Authorized user. However, if that person does not fall into the definition of Legitimate Authorized User – he/she will not benefit and their credit score will remain unaffected.

I’ve heard about piggybacking being abuse?
It used to be true. In the past, everyone could benefit from being added as an authorized user, even a complete stranger.

“Credit Clinics” used to exploit this loophole. Consumers paid thousands of dollars to get added as an authorized user to the credit card of a total stranger with a stellar credit history. This would raise their score and misrepresent their credit risk to lenders.

On January 2009 Fair Isaac has updated their Fico version (called FICO 8, NextGen Fico or Fico 08), and along with it put an end to this abuse. The new Fico formula allows only legitimate authorized users (spouse, parents & kids) to benefit from piggybacking.

Not all creditors have switched to the new Fico 8, so such abuse continues on a very small scale. But for the majority of people – you need to be a legitimate authorized user to enjoy piggybacking.

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