Piggybacking Credit

Piggybacking Credit

History

For years, credit lenders allowed users to “piggyback” on other consumers to boost their credit scores. This was a legitimate practice designed to help friends and relatives qualify for loans and get lower interest rates on debt obligations. By adding a person as an “authorized user” to your credit card, your good (or bad history) with that account could be imported into the other person’s credit files at the three bureaus. (There are three main nationwide consumer credit reporting companies: Equifax, Experian and TransUnion. They monitor each individual’s credit worthiness.)

Current Practices

A new type of credit repair service operates under the same basic principle, but promises consumers the ability to rapidly boost credit scores, get loans from banks, and lower interest rates. The piggyback credit service allows people with poor credit scores to add themselves as authorized users of those with excellent credit who are paid to allow this “piggybacking.” However, this practice has lenders and the government concerned.

The practice of using “piggyback credit” can also put consumers into debt obligations beyond the means of their income. Building good credit takes time. Shortcuts such as piggyback credit can harm rather than benefit the users. Lenders worry that applicants who artificially boost their credit scores will have a greater risk of defaulting on their loans. Some even call it mortgage fraud. The practice has already caused widespread concern as, according to an Associated Press article, “Ninety percent of the largest U.S. banks base their loan decisions on FICO scores, which currently include authorized user accounts.” (FICO scores are a measure of credit risk and are the most used credit scores in the world.) FICO scores may not include authorized user accounts much longer.

Future Implications

The decision has been made to change the leading FICO credit-scoring formula to ignore all references to authorized user accounts. This change will occur in the upcoming months and years. Up to 41 million people could potentially see their scores affected by the change. Those who are authorized users on accounts with high credit scores might see their scores drop.

There are several legitimate ways to improve your credit scores. There are no quick fixes and be wary of any company or individual that purports to have that ability. You have the power to repair your credit. The best way is to show income stability and prompt payment patterns. Over time, this consistent behavior will improve your score.