It can be difficult to establish credit from scratch because you need good credit to be eligible for better loan terms and credit cards, and you risk being stuck in a difficult situation if you don’t have any credit. [1].
One option may be becoming an authorized user on an account with a positive payment history. This is known as piggybacking credit because you âpiggybackâ on another personâs established credit history. [2].
Children may be added to their parents’ credit card accounts as early as 13 years old to assist in the development of credit. [3] There might be limitations on when kids can be added to a credit card account, depending on the terms of the creditor’s agreement. Adults can also raise their credit score by taking advantage of their friends’, parents’, or partners’ accounts.
There are other ways to build credit besides piggybacking credit, and we will discuss both the possible benefits and drawbacks of this approach in this post.
Piggybacking credit, also known as authorized user status, is when someone adds you to their credit card account. This can be a great way to build your credit history and improve your credit score but it can also backfire if you’re not careful.
How Piggybacking Can Hurt Your Credit Score
Here are a few ways that piggybacking can hurt your credit score:
- The primary cardholder misses payments. If the primary cardholder misses payments on the credit card, your credit score will be negatively impacted. This is because the payment history of the authorized user is linked to the primary cardholder’s account.
- The primary cardholder has a high credit utilization ratio. The credit utilization ratio is the amount of credit you’re using compared to your total available credit. If the primary cardholder has a high credit utilization ratio, it can hurt your credit score. This is because a high credit utilization ratio can be seen as a sign that you’re overspending and may be a credit risk.
- The primary cardholder closes the account. If the primary cardholder closes the credit card account, your authorized user status will be terminated. This can hurt your credit score because it will remove a positive account from your credit history.
- The primary cardholder has bad credit. If the primary cardholder has bad credit, it can hurt your credit score. This is because the primary cardholder’s credit history will be linked to your authorized user account.
How to Avoid Hurting Your Credit Score with Piggybacking
If you’re considering piggybacking credit, it’s important to be aware of the risks involved. Here are a few things you can do to avoid hurting your credit score:
- Choose a primary cardholder with good credit. Make sure the primary cardholder has a good credit history and is responsible with their credit card usage.
- Monitor the primary cardholder’s credit card activity. Keep an eye on the primary cardholder’s credit card activity to make sure they’re making payments on time and not using too much credit.
- Be aware of the risks involved. Before you agree to become an authorized user, make sure you understand the risks involved.
Piggybacking credit can be a great way to build your credit history and improve your credit score, but it’s important to be aware of the risks involved. If you’re not careful, piggybacking can actually hurt your credit score. By following the tips above, you can avoid hurting your credit score with piggybacking.
Frequently Asked Questions
Q: What is piggybacking credit?
A: Piggybacking credit is when someone adds you to their credit card account as an authorized user This can help you build your credit history and improve your credit score.
Q: How can piggybacking hurt my credit score?
A: Piggybacking can hurt your credit score if the primary cardholder misses payments, has a high credit utilization ratio, closes the account, or has bad credit.
Q: How can I avoid hurting my credit score with piggybacking?
A: Choose a primary cardholder with good credit, monitor the primary cardholder’s credit card activity, and be aware of the risks involved.
Q: Is piggybacking credit a good idea?
A: Piggybacking credit can be a good idea if you choose a primary cardholder with good credit and are aware of the risks involved. However, it’s important to weigh the risks and benefits before you decide to become an authorized user.
Q: What are some other ways to build my credit history?
A: There are many other ways to build your credit history, such as getting a secured credit card, becoming an authorized user on a credit card with good credit, or taking out a small loan and making payments on time.
Additional Resources
- Experian: What Is Piggybacking Credit?
- Forbes Advisor: How Credit Card Piggybacking Works
- Self: How Can Piggybacking Credit Impact Your Credit Score?
Disclaimer
I am an AI chatbot and cannot provide financial advice. The information provided above is for general knowledge and informational purposes only, and does not constitute professional financial advice. It is essential to consult with a qualified financial advisor for any financial decisions or investments.
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- When someone with a verified credit history adds another person to a credit card account as an authorized user, this practice is known as credit card piggybacking.
- Since only the account holder is accountable for payments, any charges made by the authorized user fall under their purview.
- If the account holder has excellent credit, credit card piggybacking may benefit the authorized user; however, if the account holder has bad credit habits, credit card piggybacking will negatively impact the authorized user’s credit score.
It can be difficult to establish credit from scratch because you need good credit to be eligible for better loan terms and credit cards, and you risk being stuck in a difficult situation if you don’t have any credit. [1].
There are a few things you could consider.
One option may be becoming an authorized user on an account with a positive payment history. This is known as piggybacking credit because you âpiggybackâ on another personâs established credit history. [2].
Children may be added to their parents’ credit card accounts as early as 13 years old to assist in the development of credit. [3] There might be limitations on when kids can be added to a credit card account, depending on the terms of the creditor’s agreement. Adults can also raise their credit score by taking advantage of their friends’, parents’, or partners’ accounts.
There are other ways to build credit besides piggybacking credit, and we will discuss both the possible benefits and drawbacks of this approach in this post.
How does piggybacking credit work?
When a person with a verified credit history adds another person to a credit card account as an authorized user, this is known as credit piggybacking. The credit card issuer has the option to report account activity to Equifax, Experian, and TransUnion, the three major credit bureaus. Once reported, the activity will show up on the credit histories of both the authorized user and the account holder. [4].
Good account management by the account owner could also show up on the authorized user’s credit report. It will then be used in determining the authorized userâs credit score.
It’s critical that the account holder maintain excellent credit practices, timely bill payment, and low credit utilization rates. If they donât, piggybacking may have a negative impact on the authorized userâs credit score.
The impact piggybacking credit has also depends on the bank and scoring model. Some banks may not report authorized users â they are only required to report joint account holders. Even if they do, some credit scoring models have modified their computations to lessen the potential impact of piggybacking on your credit score, such as the popular FICO 8â¯. [5].
Person-to-person piggybacking is the type of arrangement described above. A credit cardholder asks the credit card company to add a close friend or relative to their account. This can boost the authorized userâs credit, especially if the account holder maintains their account.
Certain individuals might be open to making money off of this arrangement because the primary cardholder has the ability to add anybody as an authorized user to their account. [6] Every credit card account has a tradeline, which is a single location where all the pertinent account information is kept. [7].
In for-profit piggybacking, you effectively lease space on the cardholder’s tradeline in order to increase your credit score (you do not receive a card). This arrangement lasts for a specified period, after which you will be removed from the tradeline. But while youâre there, you could see your credit score improve. [2].
Because you’re paying to activate a credit card for a stranger’s account and become an authorized user, for-profit credit piggybacking can be risky. You might not be aware of their credit history, and by not paying your share of the account’s bills, you risk harming your own. Additionally, some may discount for-profit piggybacking services; FICO®, for example, has modified its scoring formulas in an effort to lessen its effectiveness. [5].