Is Credit Card Piggy Backing A Good Way To Build Credit?
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Is credit card piggybacking a good way to build credit?
In terms of credit, piggybacking is the act of becoming an authorized user on someone else’s credit card, most commonly a friend or family member. People typically use credit card piggybacking to help raise their credit score, especially if they have poor credit and cannot open an account themselves.
However, not all forms of credit card piggybacking are the same, and it does come with its own risks.
What Is Piggybacking And Why Is It Useful?
Piggybacking is the financial term for becoming an authorized user on someone’s line of credit. The person adds your name and information to their account, so that any information about that line of credit may count towards both of your credit reports.
Piggybacking is most common with a person’s parents, significant other, or close friend or relative with whom they have mutual trust.
In theory, this practice allows information that positively affects the person’s credit report to also affect your credit report. Payment history and credit card usage, for example, would be applied to both of your credit reports in the same way. However, this is not always the case.
Does Piggybacking Actually Work?
If a credit card company agrees to report data for all authorized users on their accounts, then piggybacking theoretically works, and may help people build credit history or may help people notice a small boost in credit scores.
With that said, piggybacking does not always work.
Some Companies Do Not Report Authorized Users
Part of the reason for this is that credit card companies do not have to agree to report data on authorized users. They may allow a person to become an authorized user and still not report their data to the credit bureaus. Even companies that do report data for authorized users may not do so regularly.
If you are looking to become an authorized user on an account, make sure to call the credit company ahead of time to ask if and how they report credit card activity for authorized users. They may not even give you this information, but it does not hurt to ask.
Piggybacking With The Wrong Person May Do Serious Harm
If you are piggybacking, you are likely already trying to build up your weak credit report. Piggybacking with the wrong person can be especially harmful here. Just as positive information is reported to the credit bureaus, negative information from their account is also reported, and may end up on your credit report too.
The same is true for their account. If you are irresponsible with the credit account, miss a payment, or spend too much, you can harm their account. This is why it is important you only become an authorized user an an account of someone with whom you have mutual trust, such as a parent or close loved one.
It Is Only A Starting Point
If piggybacking does work, it is not a long-term solution. Piggybacking has its limitations, and should only be seen as a starting point. You should simultaneously look towards other means of building credit, such as getting a credit builder loan or secured credit card.
Types Of Credit Card Piggybacking
There are also two different types of credit card piggybacking. Classic piggybacking involves asking someone you know and trust to use their account. The other involves paying a company to help boost your credit.
1. Classic Piggybacking
Classic, traditional piggybacking treats the process the way it was intended. You find a close friend or relative you trust who has an account in good standing and ask to become an authorized user on their account. Ideally, their credit successes become your own as well, and your credit report reflects this positive history.
In these cases, you may not even need to actually use the account to notice the effects. For instance, a parent may add their adult child to their account without actually giving them access to it, as a way to build positive credit history before becoming financially independent.
2. For-Profit Piggybacking
For-profit piggybacking is relatively new, and involves paying a third party to find a person who will add you as an authorized user, in hopes of boosting your credit score.
The process itself is similar. The company pairs you with a person who has an account in good standing, adds you to an account, and the activity of that account gets added to your credit report as well. The company then charges a fee for making the connection.
The process is completed with strangers all around, so it is more of a high-risk process. It is generally more advisable to be added to the account of someone you know and trust.
Risks Of Credit Piggybacking
Piggybacking also carries its own risks. For instance, there is always the chance that the information will never make it to your credit report. Credit card companies are not required to report information for authorized users – or to even tell you if they do report it! As such, there is no real way of knowing in every circumstance.
Additionally, there is always the potentially of either party slipping up, and causing derogatory marks to appear on both credit reports. A missed payment may have a strong effect on a credit report that is just starting out.
Financial institutions are also trying to make the process less appealing by making it count for less on your credit report. For instance, starting with the FICO Score 8 credit scoring model, the effects of piggybacking are substantially reduced, meaning they will not positively affect your credit score nearly as much as they did in the past.
Finally, for-profit piggybacking may also put you at risk of ID theft or other scams from shady companies who do not protect your data correctly, as you may need to give them your full name, social security number, and birth date.
Final Thoughts
While FICO and other financial institutions look to make the practice of piggybacking more unappealing, it may still be possible to get some benefit out of the practice – under the right circumstances.
If you will be using piggybacking to try and help build your credit score, avoid for-profit companies. Seek instead to use the account of a close friend or family member you can trust. Be sure to also call the creditor before and ask if they report information on authorized users.
While piggybacking may be a good way to build your credit in some circumstances, there are better ways. If you are trying to build credit or repair your credit score, look to other methods to help you build credit as well. More reliable methods such as secured credit cards or credit builder loans may have a greater effect on your account than piggybacking.
Written by Lee Schmidt · Updated July 3, 2019 · Published July 3, 2019