If you’re new to credit or want to put credit missteps behind you, there are credit cards available for people with less-than-perfect credit. But they aren’t a good choice for all borrowers, as they may have higher interest rates, lower credit limits and fewer perks than cards designed for those with strong credit.
One way to work on improving your credit score without applying for an account of your own is by piggybacking on the credit of a family member or friend. However, there are things you should consider before you decide to do it.
What Is Credit Piggybacking?
Credit piggybacking is using someone else’s credit card account to improve your credit score. This typically means getting added as an authorized user on a family member’s or friend’s credit card.
According to a 2017 report by the Consumer Financial Protection Bureau, roughly 11 percent of consumers start building credit with an authorized user account. As an authorized user, you’ll be added to the card account and will even get your own credit card tied to the account, but you’re not required to use it.
Many credit card issuers report authorized user accounts to the three national credit bureaus, Experian, Equifax and TransUnion.
Why Piggybacking Can Be Worth It
Becoming an authorized user on someone else’s credit card account allows you to build credit without the same responsibility you would have if you were to open your own credit card account. Here are some of the benefits:
You’re not liable for the debt. Since you’re not the primary or a joint account holder, you’re not held responsible for paying off the credit card each month, even if you were the one who made the purchase. What’s more, the credit card company can’t come after you if the primary account holder defaults on his or her payments. Of course, you’ll need to pay back your family member or friend if you choose to use the card for purchases. Otherwise, it could damage your relationship.
The credit card will show up on your credit report. If the credit card issuer reports authorized user accounts to the credit bureaus, you’d get all the positive history on the account. So, if your parent has had the same card for the last 10 years and adds you as an authorized user, you’ll instantly have 10 years’ worth of account history on your credit reports.
As such, it’s essential that you work with someone who uses credit responsibly. “If you become an authorized user on an account that’s charged to the max every month, that’s not going to be very beneficial to you,” says Rod Griffin, director of consumer education and awareness at Experian. “If it’s an account that’s not paid on time, that’s even worse.”
Your exposure to negative history is limited. Your credit score may dip if the primary cardholder racks up a high balance. But if that person stops making payments for a while, you can request that the issuer remove you from the account. Though, you may also need to confirm with the credit bureaus that they’ve removed the account from your report.
Potential Drawbacks of Credit Piggybacking
Authorized user status can help you in the right situation, but there’s no guarantee it will provide you with the results you want. Here are some of the cons to consider:
Piggybacking isn’t as beneficial as getting your own account. When FICO released the FICO 8 scoring model in 2009, it announced that authorized user accounts would have less impact on consumers’ credit scores than before. This shift was primarily an attempt to discourage people from using paid piggybacking services.
That said, lenders aren’t required to use the most up-to-date scoring models, and it’s possible that some still use previous versions. But if you can, getting your own credit card or a loan to boost your credit score can provide you with more certainty.
You’re at the mercy of the account holder. If the primary cardholder doesn’t use the card responsibly after adding you as an authorized user — such as by racking up a high balance or missing a payment — it could reflect poorly on your credit report.
If things get really bad, remember that you can take yourself off the account. But removing the authorized user account from your credit history will remove both the positive and negative information associated with the account. So, if you haven’t taken the opportunity to build your credit in other ways, you’ll end up back at square one.
It won’t fix other negative items on your credit reports. Adding positive information to your credit reports can help boost your credit score, but it’s not going to make the negative items go away.
“If you have serious delinquency issues or collection accounts,” says Griffin, “being added as an authorized user isn’t going to offset those problems.”
So, if you want to rebuild bad credit, take a look at your credit reports to see what’s causing it. Then, focus on addressing the negative items first, including getting caught up on payments or paying down high credit card balances. Once you’ve done these things, an authorized user account may help make more of a difference.
Beware of Paid Piggybacking Services
One form of credit piggybacking is through a piggybacking service. Companies recruit people with good credit and pay them to allow other people to piggyback off their credit, says Jeff Richardson, vice president and group head of marketing and communications at VantageScore.
One company, for example, charges up to $1,500 depending on the age and credit limit of the account. Once the authorized user account gets reported to the credit bureaus, it will remain open for two or more months, then it’s “closed” so the positive account information stays on the credit reports.
According to Richardson, the practice of paying to piggyback a stranger’s credit history is frowned upon. “You shouldn’t be able to buy good credit,” he adds.
Beyond the question of ethics, Griffin points out another big flaw in the system. “Someone’s going to have to have your identifying information to add you as an authorized user,” he says. “It could expose you to potential fraud” if that information gets in the wrong hands.
What to Consider Before Asking for Authorized User Status
If done right, getting added as an authorized user can help you get the credit score boost you need to start building credit in other ways. But doing so is a big step for you and your family member or friend. So, it’s crucial that you consider a few things before making a decision.
Know how the credit card issuer reports activity. Not all credit card issuers report authorized user accounts the same, and some don’t report them at all. Ask your family member or friend to check with the card issuer beforehand to find out how it will report the information to the credit bureaus. If the issuer doesn’t report the information to all three credit bureaus or doesn’t report everything, it may not be worth the effort.
Communicate about the arrangement. While it’s not required for you to use your authorized user card to get the credit benefits of the account, you may still want to use it.
“Be very clear and transparent about that with the person who’s allowing you to be an authorized user,” says Richardson. “They’re taking a risk, so clear communication and outlining some clear uses of the card are essential.”
Also, make sure to set up an arrangement to pay back what you owe as you use the card.
Consider all your options. Getting added as an authorized user isn’t always an option. And even when it is, getting an account of your own could be more beneficial. Take the time to consider other options to build your credit. Richardson recommends looking into credit-builder loans, as well as store and gas credit cards. Other options include:
— Applying for a savings-secured loan.
— Getting a co-signer on a personal or auto loan.
— Asking your landlord to report rent payments to the credit bureaus.
Depending on your situation, the right solution may be one of these options or a mix of several. Do your due diligence to determine what will work best for you.
Also, keep in mind that piggybacking someone else’s credit can only take you so far. The most important thing you can do to build credit is to borrow responsibly and develop good credit behaviors. Over time, those actions will help you establish and maintain an excellent credit history for years to come.
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