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Piggybacking Can Boost Or Hurt Your Credit Score
Adding an authorize user to your credit card account is a way to boost the credit score of someone with less than perfect or no credit history. The technique is also called “Piggybacking” and can be a double edge sword, if either the account holder or the authorize user fail to make payments.
First let me explain how it works. Let’s say a mother has been very responsible when it comes to her bills, she has been paying on time and has built up a top notch FICO credit score. Now her daughter is of age and wants to start building her credit. The mother can place her daughter on her credit card account as an authorize user and within a short period of time, her credit score will transfer over to the daughter. To lenders, it will seems as if the daughter has been responsible and has build up her credit.
Piggybacking is a practice that has been in existence for many years and almost came to an end in 2008 due to abuse. Thanks to the FTC and the Federal Reserve Board, Fair Isaac Corporation revamped the practice with new rules. It is still as effective and being used by many to boost their credit scores.
To continue with my mother and daughter example, if the daughter was to miss a few payments, her mother’s credit score would take a hit as well and visa versa. Banks report authorize user information to the major credit reporting companies Experian, Equifax, and Transunion. As you know, anything dealing with credit is very delicate and every little mishap could take years to clear up.
If you are considering adding an authorized user to you credit card account, make sure you keep a close eye on your statements. If you are adding your child as an authorize user, try to limit the amount they can spend until they prove that it is something they can handle. Credit is a form of trust and once its broken it will take years to fix.
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