Credit card piggybacking, also known as becoming an authorized user, is a strategy where one person adds another to their credit card account to help improve the latter’s credit score. This can be a useful tool for building credit, especially for those with limited or poor credit history. However, it’s essential to understand the risks and rewards before deciding if piggybacking is right for you. In this guide, we’ll explore the ins and outs of credit card piggybacking, how it works, and how to use it safely.
What is Credit Card Piggybacking?
Credit card piggybacking involves adding someone, typically a family member or friend, as an authorized user on your credit card account. As an authorized user, they can benefit from the primary cardholder’s good credit behavior, such as on-time payments and low credit utilization, which can help improve their credit score. The authorized user doesn’t need to use the card or make payments, but they gain the credit benefits of the account being in good standing.
How Does Piggybacking Affect Credit Scores?
Piggybacking can positively affect the authorized user’s credit score in several ways:
- Payment History: If the primary cardholder has a history of on-time payments, the authorized user can benefit from this positive payment history being reflected on their credit report.
- Credit Utilization: A low credit utilization ratio on the account can help boost the authorized user’s credit score by improving their overall credit utilization.
- Account Age: If the credit card account is old, it can lengthen the authorized user’s average account age, which is a factor in credit scoring.
Benefits of Credit Card Piggybacking
Credit card piggybacking can be a powerful tool for improving your credit score, particularly if you have a limited or poor credit history. Here are some of the key benefits:
1. Building Credit History
For those with no or limited credit history, piggybacking can provide a quick way to establish a credit history by associating with a well-managed account.
2. Improving Credit Score
If the primary cardholder has a strong credit history, the authorized user can see a significant boost in their credit score due to the positive credit behaviors being reported on their own credit report.
3. Access to Better Credit Terms
A higher credit score resulting from piggybacking can lead to better credit terms, such as lower interest rates on loans and credit cards.
Risks and Downsides of Piggybacking
While piggybacking can be beneficial, it’s not without risks. Here are some potential downsides to consider:
1. Financial Risk for the Primary Cardholder
If the authorized user racks up charges on the account and cannot repay them, the primary cardholder is responsible for the debt. This can lead to financial strain and potential damage to the primary cardholder’s credit score.
2. Limited Control for Authorized Users
Authorized users typically have no control over the account. If the primary cardholder misses payments or maxes out the card, it could negatively impact the authorized user’s credit score.
3. Potential for Fraud
There is a risk of fraud if the authorized user abuses the card. It’s crucial to trust the person you’re piggybacking with and set clear expectations about card use.
4. Not a Long-Term Solution
Piggybacking can provide a temporary boost to your credit score, but it’s not a long-term solution. Building your own credit through responsible financial behavior is essential for sustainable credit health.
Legal Considerations of Credit Card Piggybacking
Credit card piggybacking is legal, but it’s important to be aware of the ethical and legal implications. The practice of renting authorized user spots on credit cards, known as “credit piggybacking for hire,” has raised concerns and scrutiny from credit bureaus. While adding a family member or friend as an authorized user is generally acceptable, engaging in paid piggybacking services could be risky and may violate the terms of your credit card agreement.
How to Use Credit Card Piggybacking Safely
If you’re considering credit card piggybacking, here are some tips to ensure you use it safely and effectively:
1. Choose the Right Cardholder
Select a primary cardholder with a strong credit history, including a history of on-time payments, low credit utilization, and a well-established account. This will maximize the benefits to your credit score.
2. Set Clear Expectations
If you’re the primary cardholder, establish clear guidelines with the authorized user about how the card can be used. Consider keeping the card in your possession to avoid unauthorized charges.
3. Monitor Credit Reports
Both the primary cardholder and the authorized user should regularly monitor their credit reports to ensure there are no unexpected changes or inaccuracies. This helps catch any potential issues early.
4. Have an Exit Strategy
Piggybacking should be part of a broader credit-building strategy. Plan to eventually establish your own credit by opening a secured credit card or obtaining a small loan that you can repay on time.
Alternatives to Credit Card Piggybacking
If piggybacking isn’t right for you, there are other ways to build or improve your credit:
1. Secured Credit Cards
Secured credit cards require a cash deposit that serves as your credit limit. By making small purchases and paying off the balance each month, you can build a positive credit history over time.
2. Credit Builder Loans
Credit builder loans are small loans designed to help you build credit. The lender holds the loan amount in a savings account while you make monthly payments. Once the loan is paid off, you receive the funds, and your positive payment history is reported to the credit bureaus.
3. Becoming a Co-Signer
If you’re unable to get approved for a credit card or loan on your own, consider asking a trusted friend or family member to co-sign. This can help you qualify while also building your credit through timely payments.
FAQs About Credit Card Piggybacking
Is credit card piggybacking legal?
Yes, credit card piggybacking is legal, but it’s important to do it ethically. Adding a family member or friend as an authorized user is generally acceptable, but renting authorized user spots may violate credit card terms and is discouraged.
How does piggybacking affect my credit score?
If done correctly, piggybacking can positively impact your credit score by adding a positive payment history, lowering your credit utilization, and increasing your average account age.
Can piggybacking hurt my credit score?
Piggybacking can hurt your credit score if the primary cardholder has poor credit habits, such as missed payments or high credit utilization, which will be reflected on your credit report.
What’s the difference between piggybacking and being a co-signer?
Piggybacking involves being an authorized user on someone else’s credit card account, while co-signing involves sharing responsibility for a loan or credit card. Co-signers are legally obligated to repay the debt if the primary borrower fails to do so.
Should I use a paid piggybacking service?
Using a paid piggybacking service is risky and may violate credit card terms. It’s safer and more ethical to piggyback with someone you know and trust, such as a family member or close friend.
Conclusion: Is Credit Card Piggybacking Right for You?
Credit card piggybacking can be a valuable tool for building or improving your credit score, especially if you have a limited credit history. However, it’s essential to use this strategy wisely, choose the right primary cardholder, and have a plan for establishing your own credit in the future. By understanding the benefits, risks, and legal considerations, you can make an informed decision about whether piggybacking is the right option for you.
