Building credit isn’t easy. Many lenders don’t want to take risks in extending credit to someone with no history of repaying them.
Piggybacking credit is when someone adds you as an authorized user on their credit card to help boost your credit.
In this article, we’ll give a look at the kinds of piggybacking credit, and also run through the basics of piggybacking credit and who can help you do it.
Types of Piggybacking Credit
People who are new to credit, their first option for piggybacking is to be their parents. Then their next option would be their close friend with good credit. But what would happen if there is no option like this?
To avoid such circumstances the lenders have built two types of piggybacking credit:
- Traditional piggybacking credit
- For-Profit piggybacking credit
Traditional piggybacking credit
As stated above, traditional piggybacking involves an authorized user. It will take the authorized user’s card payment history and show up as your own reports.
A family member or close friend with excellent credit may be willing to share their good credit with you. That person would contact their credit card issuer and add you as an authorized user. Then you can either issue a card in your name or not.
For-profit piggybacking credit
Be careful about this one. With for-profit piggybacking credit,, the company can help with someone piggybacking as an authorized user on someone else’s credit card. Furthermore, these people are strangers to one another and are grouped together. The company charges a fee for facilitating this connection.
These piggybacking companies are not violating laws by facilitating piggybacking. You’re renting a credit from a person who is a stranger and wants to make a profit from their credit score. You’re using a for-profit business as an intermediary to do it. But in these situations, you’re giving a great deal of trust to an organization and a person whom you don’t know.
There are significant drawbacks associated with using for-profit piggybacking services:
- It is a questionable and possibly deceptive practice
- For-profit piggybacking services are expensive
- You have to give up your personal information
- It’s a short-term solution
- Lenders don’t look favorably on the practice
- It may give you false confidence when borrowing
How Piggybacking Credit Works
Piggybacking Credit is not as becoming a joint account holder. If someone with good credit adds you as an authorized user to their credit cards. Then that credit card account and payment history will become part of your own credit report.
The difference is, the authorized user is not responsible for the charges made on the credit card. The authorized user gets the cardholder’s full account history reflected on their credit report. This can have a positive effect on their credit score.
If you piggyback someone who doesn’t have a positive credit history then your credit score will go down. The piggybacking credit is beneficial for an authorized user. The primary cardholder who added the authorized user could see their credit score lower if the authorized user has a poor credit history.
Advantages of piggybacking credit technique
Piggybacking credit can help you improve your credit score, through an authorized process whereby the person helping you agree to do so, and you agree to make regular payments and not mess up their credit.
- Your entire credit limit increases, which could lower your credit utilization ratio, if the balance on the card you’re piggybacking onto is low.
- Depending on how long the account has been open, you might increase the length of your credit history. Longer credit history is positive because you have experience in managing credit.
Disadvantages of Piggybacking Credit
If the account holder gives access to the card to the authorized user, then the user has to handle the risk. The risks like repayments on purchases made by the authorized user.
You can reduce the risk by monitoring the credit score of the user and removing them once the score has increased.
You can also lower the credit limit for the user.
An authorized user is also at a risk as a default in payment by the account holder. It can impact both user and owner’s scores.
Does Piggybacking Help or Hurt Your Credit?
Piggybacking is a good credit boosting method for individuals with thin credit files or low scores. It is useful for people to build their own credit.
This technique will not have much impact on someone who already has a favorable credit. The interest rates they receive will not improve significantly since they were low credit risks.
Piggybacking requires an understanding between you and the authorized user.
Piggybacking credit is beneficial for some, but it’s better to approach it in a thoughtful way. It’s important to keep in mind that not all account holders or credit lenders can be helpful in getting intended credit results.
Key Take Away
Piggybacking on someone’s credit is a legitimate way to boost your credit scores. It is better if you know the account holder personally and piggybacks them. If you don’t have a choice but hire a credit repair company to provide this service, get about the company, read the customer reviews to make sure they can help in boosting your credit scores.
Piggybacking credit is a good way to help build credit. It is a good credit-boosting method for individuals with low credit scores. But there are some ups and downs to be considered. Building credit is a journey that involves many steps.
Frequently Asked Questions
1. If you remove an authorized user, can it hurt your credit report?
Yes, removing yourself as an authorized user can negatively affect your credit score. It will no longer appear on your report, which impacts the length of your credit history.
2. Will your credit report hurt if you add someone to your credit card?
Adding an authorized user to your credit card by itself doesn’t have a negative effect on your credit. It can only hurt your credit when the authorized user becomes irresponsible in using your card.