Credit Card Piggybacking & Impact to Credit Scores
Ride Your Way to Better Credit Score
For years, parents have used credit card piggybacking to help their children get a jump start on their credit. Credit card piggybacking simply refers to adding someone as an authorized user on your credit card, usually to give them a credit boost.
In 2007, credit card piggybacking under intense scrutiny around the time of the mortgage meltdown. Shady credit repair companies and dishonest consumers used the process of piggybacking credit to artificially boost bad credit scores to qualify for mortgages that homeowners really couldn't afford. For awhile, it seemed that the benefits of piggybacking credit were going to disappear, even for people who used the practice legitimately.
What is Credit Card Piggybacking?
Credit card piggybacking is much like the childhood game of being carried around on someone else's back, but instead of a back, you're carried on someone else's credit card account. A credit cardholder adds another person as an authorized user on their credit card account. Then, the entire history of that credit card account appears on the authorized user's credit report and included in their credit score. None of the cardholder's other cards or loans will appear on the authorized user's credit history, just the one card.
Being an authorized user on a credit card with a positive payment history would boost your score (granted the credit scoring calculation includes authorized user accounts in credit scores). On the other hand, late payments and high credit card balances for the authorized user account could lower your score depending on the other information on your credit report. Note that not all credit card companies report authorized user accounts to credit bureaus, partly because of the cost and partly because of the way the practice has been abused.
Piggybacking became a way for people with bad credit to fake higher credit scores without having actually done the work to build credit to build credit on their own. There are companies who charge a fee to add you as an authorized user to a stranger's positive credit card account. As a result, you'd see a boost in your credit score once the account hits your creidt report. Then, you could use the higher score to qualify for loans, credit cards, and interest rates you wouldn't have been able to get otherwise.
You never get access to a physical credit card or the account information, just the benefit of the history showing up on your credit report.
When the mortgage meltdown began, lenders realized they'd been defrauded and criticized the way authorized user accounts could be manipulated to artificially inflate credit scores. In response, FICO tweaked their eponymous score to allow lenders to better predict fraudulent authorized user accounts. The company originally planned to remove authorized user accounts from the calculation completely, but fortunately for legitimate authorized users, chose the more consumer friendly route.
Is Piggybacking Illegal?
There's disagreement on whether credit card piggybacking is illegal or just deceptive. U.S. law says that someone who commits bank fraud "knowingly executes, or attempts to execute, a scheme or artifice to defraud a financial institution; or to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises." The crime is punishable by a maximum $1 million fine or 30 years in prison or both.
Based on the definition, credit card piggybacking could be considered bank fraud, but, to date, there has been no official ruling on the practice.
Does Piggybacking Still Work?
It's not as easy to artificially boost your credit score because the credit industry has closed on in the loophole. Some credit card issuers do not report authorized user accounts to the credit bureaus or they only report the account when the authorized user actually has a credit card on the account. Credit scoring calculations have become more sophisticated, detecting when an authorized user account is actually legitimate and when you've been added to a stranger's account for the purpose of boosting your credit score.