Editorial Policy

Bad Credit? Piggybacking May Help Improve Credit

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By Eva Norlyk Smith, Ph.D.
February 3, 2011

People with no credit history or bad credit are often caught in a Catch-22 — they need to demonstrate good credit behaviors to develop a credit history or improve credit, but they can’t get any credit to do so, because they have bad credit or no credit record.

Well, there is one little loophole, which can be helpful — although it’s not a viable alternative for everyone: piggybacking.

Piggybacking can be a great option for parents wanting to help their kids get started creating a credit history (while keeping an eye on the process as well). It can also be a viable choice for married couples where one spouse has great credit while the other has no credit history or not-so-great credit. Particularly, when planning for major financial moves like taking on a mortgage or even a car loan, adding the spouse with no credit history or bad credit as an authorized user six to twelve months in advance can be a way to boost joint credit eligibility.

How does piggybacking work? As the name implies, piggybacking involves adding another person as an authorized user on a credit card in order to either help that person get started building a credit history or improve his or her credit score. The authorized user will still keep the previous credit history, but his or her account will suddenly show some evidence of a good credit history, and if there is debt, the ratio of debt to available credit will also go down.

The practice of piggybacking came under fire some years back, because it was being used as a loophole by some credit repair companies to artificially boost clients’ credit scores by paying strangers to add clients to their credit cards as authorized users. In response, FICO, the company originating FICO scores, at one point eliminated authorized user accounts altogether from its credit scoring model. However, with the introduction of FICO 08, its current scoring algorithm, FICO changed the rules and regulations to prevent abuse, while still allowing legitimate uses of piggybacking.

FICO estimates that an estimated 50 million U.S. consumers are legitimate authorized users on another person’s credit card.

What are the pitfalls of piggybacking? Cardholders adding an authorized user to the account should bear in mind that they, not the authorized user, ultimately are responsible for all credit balances on the account. This differs from jointly held credit card accounts, where both parties are responsible for any credit card debt. In short, should the authorized user go to town with the credit card and fail to pay the bills, the primary cardholder will be on the hook for all charges. Further, if the authorized user racks up high credit card balances, the increased debt-to-credit ratio could pull down the primary cardholder’s credit score.

Also keep in mind that while piggybacking can be a help in boosting credit scores, it’s only a small part of the picture. It is no substitute for taking proactive steps to raise one’s credit score by demonstrating good credit management skills, such as paying bills on time and avoiding excessive debt loads.