Can credit card piggybacking boost your credit score?

By Zina Kumok, Financial Health Counselor, Credit Counselor
Updated October 1, 2018

As a parent, you want to do everything possible to give your child a leg up. You try to give them not only the means to start life on the right foot, but the tools to create their own success later on. When it comes to being successful financially, one of the most important things you can give them is a healthy credit history.

Starting your adult life without a credit score can be a losing battle. Much like trying to find your first job without any real work experience, most forms of credit require you to have an established credit history to be approved. If you can help your child build credit before they leave the house, you’ll be giving them an invaluable head start.

That’s where credit piggybacking comes in. Read on to learn how you can use this technique to help your child or family member establish a credit history.

What is Piggybacking on Credit?

Building a credit score from scratch can be a Catch-22. You need to have good credit or some credit to qualify for a loan or credit card account, but you can’t build a credit history without getting a loan or credit card first.

One of the easiest ways to help your kids establish a credit history is to let them be an authorized user on one of your credit cards, also known as “piggybacking” on your credit.

It works like this: You have a good credit score and a credit card that you use regularly, always paid off in full. Using this credit card helps you maintain a good credit score. You want to help your child set up his or her own credit history, so you make them an authorized user on your card.

Credit card companies generally let the account holder add an authorized user for free or a small fee. Any card usage is then added to the authorized user’s credit report, and the payment history starts showing up on their credit.

How Being An Authorized User Can Affect Your Credit Score

Everything about the credit account is now tied to the authorized user's credit history, including how much credit is utilized and if you make the payments on time. On the flip side, the authorized user’s credit will tank if the account ever defaults or goes to collections.

If you use the card responsibly, the authorized user will see an increase in his or her credit score. This can be beneficial when they graduate and need to rent an apartment, put utilities in their own name or refinance their student loans. The best part of this strategy is that you don't actually have to give the authorized user access to the account.

For example, if you add your 13 year-old as an authorized user on your American Express credit card, you don't actually have to give them a copy of the card with their name on it. This way there's no danger of them running up a balance on the card, negatively affecting their credit and yours.

Before trying out the strategy, it's a good idea to call your credit card provider and ask if they report card activity to the authorized user’s credit report. Not every card will submit activity to the credit bureaus on the authorized user’s behalf. In that case, your child wouldn't see any benefit to being an authorized user on your card.

You can keep the authorized user on your account for as little or as long as you like. If you ever decide to close the account, be aware that you'll be affecting their credit. The average age of your credit accounts is a factor in determining your credit score, so by closing the account you'll decrease their average credit length and potentially harm their credit score in the process.

Benefits of Piggybacking on Credit

If your child graduates college without student loans, they won't have any credit to start their credit report. That could make it much more difficult to get an apartment without a cosigner. They also won’t be able to open a rewards credit card or even sign up for internet without paying a deposit first.

A credit score helps lenders and retailers know if a consumer is financially trustworthy. By letting your child piggyback on your credit, you'll be giving them a step up in life - without having to lend them any money or cosign on a risky loan.

Can An Authorized User Affect My Credit Score?

The only danger in allowing someone be an authorized user on your credit card is if they end up using the card to make purchases you can't afford. No matter who made the purchases, the original card owner is always responsible for paying the bill. Visa doesn't care if your 16 year-old son used his authorized card to buy a Nintendo switch - they just care that you pay for it. So make sure the account is kept in good standing by avoiding late payments.

Should you pay for piggybacking?

Given the benefits piggybacking can have on an individual’s credit, several companies offer it as a paid service. These types of companies add people looking to improve their credit onto established accounts of random, willing cardholders, which is intended to improve their scores the same way being added to a family member’s account does.

The process may not be that simple, though. FICO — who produces the most widely used credit score in the U.S. — claims that they’ve developed methods to block these services from actually impacting scoring algorithms.

"If we're talking about piggybacking in terms of the buying and selling of trade lines to improve one's score, FICO doesn't recommend that or recognize it in the newest FICO scoring model, FICO 8," according to Barry Paperno, consumer operations manager for myFICO.com.

Paperno specifies that FICO’s scoring algorithm looks “for certain patterns that are typical for illegitimate authorized user accounts.” FICO does still claim to accept credit history when an authorized user is added legitimately onto the account of a family member or friend.

Whether FICO’s detection system is perfect at filtering out paid piggybackers or not is hard to tell. But if you’re thinking about using a paid service, you should prepare for it not actually affecting your credit.

Other Ways to Build Credit

If your child needs to build his or her credit report and you don’t feel comfortable making them an authorized user, have them sign up for a secured credit card when they turn 18. In order to do this, they’ll have to have a reliable source of income outside of any money you give them.

A secured credit card requires a deposit to act as collateral. They’re designed to help people with no credit or poor credit learn how to handle credit cards responsibly, with little risk for the lender. Don’t get these confused with prepaid cards, which function similarly but won’t contribute to building credit.

The deposit will usually be the amount of the credit limit. If the credit limit is $200, you’ll have to give the credit card issuer $200. Then, you use the card just as you would any other credit card. After a few months of on-time payments, the card issuer may automatically upgrade you to a traditional credit card.

Your child doesn’t need a co-signer or other user to sign up for a secured credit card. They can apply for one on their own. Self now offers a secured credit card that uses your Credit Builder Account savings progress as the security deposit.

About the Author

Zina Kumok is a Financial Health Counselor and Credit Counselor who writes extensively about personal finance.

Written on November 11, 2016

Self is a venture-backed startup that helps people build credit and savings.
Comments? Questions? Send us a note at hello@self.inc.

Disclaimer: Self is not providing financial advice. The content presented does not reflect the view of the Issuing Banks and is presented for general education and informational purposes only. Please consult with a qualified professional for financial advice.

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