Piggybacking on someone’s credit card can be an excellent way for the person piggybacking to improve their credit. It’s more valuable in some situations than in others. But how does it work? Is it legal? Are there risks? I’ll answer these questions and more below.
Let’s jump in!
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What is Piggybacking Credit?
Piggybacking credit is the practice of letting someone with a thin credit file get added as an authorized user of someone with excellent credit.
This is not the same arrangement as being a co-signer or a joint account holder—these allow for legal liability over the account.
Piggybacking credit as an authorized user can occur in innocuous arrangements like parents helping their children build credit but can also happen when a for-profit credit repair company connects two individuals and takes a cut.
In either situation, the iffy credit score holder doesn’t gain access to an actual card held on the account. Instead, they get listed only as an authorized user without access to a credit card on the account.
The idea behind piggybacking credit is to allow the person with bad credit to inflate their own credit score, presumably to receive better credit terms down the road when they need credit.
For parents and their kids, this helps them to get a jump start on their credit history. In the case of for-profit authorized user tradelines, these participants pay money now in the hopes of paying less in the future through better credit terms.
- Best Credit Cards for Kids: Building Credit & Money Habits Early
- Best Debit Cards for Teens to Become Money Savvy
How Does Piggybacking Credit Work?
Several factors affect one’s credit score, such as the age of your credit accounts, payment history (if payments have been on time), and utilization rate.
When a person becomes an authorized user on someone else’s account, they receive the entire history reflected on their own credit report.
This means that adding an account with characteristics such as a long credit history and low utilization rate can help raise the authorized user’s credit score and give them more credit history.
An improved credit score is helpful before getting a mortgage or taking out another loan from a lender. This method works best for people with low credit scores or thin credit files. If you already have a great credit score, it isn’t as helpful.
Related: Best Credit Cards for Teenagers
What is an Authorized User?
An authorized user is a person who is permitted to use a credit card account but isn’t the primary account holder.
This means that authorized users are not responsible for making monthly payments on their credit cards, nor do they have access to view billing statements or transaction history online.
Authorized users can experience the benefits of the primary cardholder’s payment history, credit score and overall credit history.
Individuals with thin credit files may benefit from being added as an authorized user to a credit account of someone with excellent credit.
Piggybacking Credit Between Parents and Kids
Adding your child as an authorized user can provide them with several benefits in the future. It’s a way for them to start building their credit history and make it easier for minors to get a rewards credit card of their own when they are an adult.
If you allow a child to use the card, it can also teach financial responsibility and give them access to money in an emergency.
There can be perks for the adults as well. The primary cardholders can earn rewards for their kids’ spending. Long-term, this can accumulate a lot of cash back or other rewards they wouldn’t be receiving if they always give their children cash to spend instead.
The extra spending is also helpful if you’re trying to reach a spending requirement for a new card.
However, a couple of risks come with having your child as an authorized user on your card. If you choose to let your kid use the credit card, you risk having your score suffer from a rise in your total utilization.
If your credit score goes down, it can negatively affect your child’s credit file as well.
Plus, there may be irresponsible spending, and some credit cards (not all) charge fees for adding users. If your child can actually use the credit card, make sure they are trustworthy and first have conversations about spending limits and other expectations.
One option to consider instead if the Step Secured credit card.
Step (Best Secured Credit Card for Teens and Young Adults)
- Available: Sign up here
- Type of credit card: Secured
- Builds credit: Yes
The Step Visa Card is a unique “hybrid” secured credit card that’s tailor-made for kids and teens. It functions just like a Visa credit card, but it offers the safety features of a debit card—and most importantly, it can help build your child’s credit history.
Parents, who sponsor the card, can opt to have Step report the past two years’ worth of information—transactions, payment history, and more—to the credit bureaus when their child turns 18. Credit scores are assigned once someone turns 18, and most teens will begin with a score of under 600. But based on a Step survey, 18-year-olds who used Step for at least seven months had an average credit score of 725.
How much of a difference could that better credit make? Step says that an 18-year-old user with a score of 725 could expect these kinds of savings compared to users with lower credit scores:
- Car insurance: $147 per month instead of $250 per month
- Student loan: 6.24% interest rate instead of 10.46%
- Security deposit: 1 month’s rent instead of two months’ rent
Step also provides a seamless experience for teens who “graduate” into young adulthood. When they turn 18, Step allows cardholders to keep their old credit card number and account, doing the legal heavy lifting in the background to get them appointed as the legal owner of their account, and transitioning them to an independent account. Everything—from how they access the app to their account numbers to their investments—stays the same from their perspective, and Step continues reporting credit on the same “credit line,” which allows them to keep building their credit history.
In other ways, Step acts like a debit card.
Parents can add money directly into their child’s FDIC-insured Step account. A regular Step account allows a child to have both a physical spending card as well as a virtual card in the Step app, while a Parent Managed Account only allows the child to spend via a physical card. Children can use both the virtual and physical cards to spend anywhere Visa is accepted, and they can use the physical card to withdraw money for free at more than 30,000 ATMs.
And parents needn’t fear their child overdrafting—they can’t spend any money they don’t have.
Other features include Savings Goals, where any money saved can generate 5% in annual interest (compounded and paid monthly) with a qualifying direct deposit*; Savings Roundup, where purchases are rounded up to the nearest dollar and the overage is put toward a Savings Goal; an “invest” function that allows users age 13 and older to buy and sell Bitcoin; and opt-in cash or Bitcoin rewards from companies including Hulu, Chick-Fil-A, CVS, and the New York Times.
The Step Card is protected by Visa’s Fraud Protection and Zero Liability guarantee. That means if your teen’s card gets lost or stolen, or misplaced and fraudulent charges crop up, you can dispute the charges within a certain time frame to avoid liability for paying.
Hiring a For-Profit Piggybacking Service
For-profit piggybacking is the process of renting your excellent credit to a stranger in exchange for payment. You can use a profit-seeking company as an intermediary, called a tradeline company.
Tradeline credit repair companies match people with thin or poor credit files with cardholders of great credit by adding them to the credit card as an authorized user. The cardholder receives a portion of the amount you paid, and you will receive no actual card.
Credit rating agencies say tradeline companies mislead consumers about how much they can help raise scores.
In fact, a Credit Repair Organizations Act (CROA) case before the Federal Trade Commission (FTC) has shown why piggybacking credit might not always be the best choice for consumers shouldering lousy credit.
The FTC has said consumers who look to improve their credit report using authorized user tradelines need better disclosures on their potential impact.
What are Authorized User Tradelines?
A tradeline is an account that appears on your credit report. An authorized user tradeline appears when you add a person to your credit card account as an authorized user. The person added doesn’t automatically receive a credit card or have access to the credit line.
You can permanently remove an authorized user later. For these reasons, there isn’t any inherent risk for adding an authorized user you know.
Is Piggybacking Credit as an Authorized User Illegal?
Credit card piggybacking is entirely legal in the United States. Some might consider it dishonest because the person isn’t earning their positive credit report all on their own. However, piggybacking is a prevalent practice within families and with friends.
It’s kind of like a letter of recommendation. It’s also growing in popularity with strangers through third-party services. Some consider piggybacking a bit of a grey area.
What are the Benefits of Credit Piggybacking?
If you’re the person becoming an authorized user on somebody else’s user account, it can positively impact your credit score. High credit scores help you qualify for the best interest rates, save on some types of insurance, access to the best credit cards, and more.
If you’re allowing your child, significant other, or someone else you know on your credit card accounts, it benefiting them is also useful to you. Having a stranger piggybacking on your account through a third-party service provides you with financial rewards.
What are the Risks of Credit Piggybacking?
A credit company may not automatically report your authorized user accounts to credit bureaus, meaning you have to contact them, which is tricky if you’re on a stranger’s account. The person piggybacking also risks spending money for what might be only a slight credit score increase.
Starting at FICO Score 8, the benefits diminish. It has the best returns for someone with a more dire credit situation. If the account owner is irresponsible, it won’t help your score at all.
Finally, you shouldn’t use this method to borrow money under false pretenses, which is considered bank fraud. Only use it to raise your FICO score.
Are There Risks to the Cardholder for Allowing Piggybacking?
When you apply for for-profit credit piggybacking, you need to provide personal information, such as your social security number. If you aren’t using a well-known and trustworthy platform, you risk selling this information and making yourself vulnerable to ID theft.
This risk is eliminated if you are just adding your children or someone else without using a service.
How Can You Build Up Your Own Credit?
Building up credit can sometimes be a bit of a chicken and egg problem because many of the methods require you to already have some financial history.
Fortunately, there are ways to start up your credit history without the help of friends or family and without already having a high FICO score.
→ Authorized Users
You can build up your own credit by becoming an authorized user on guardians’ cards or other people with significantly longer credit histories than your own. This can dramatically reduce the amount of time it takes you to generate a FICO score.
It automatically provides you with payment history. If you don’t have a friend or family member who can add you to an account, you can look into companies that match you with somebody who has excellent credit and try piggybacking on that history.
→ Credit Builder Loans
A credit builder loan is one created to help someone build credit. The lender sets up a savings account or certificate of deposit with your loan amount and money that isn’t released until you’ve finished repaying the loan with interest.
The credit union or community bank reports your payments and other information to credit bureaus and includes whether or not you regularly paid on time.
The credit bureaus then have proof that you can make regular payments and, while some of their scoring model is secret, it’s well known that your payment history is a primary part of one’s credit score calculation.
→ Student Loans
As previously mentioned, an essential part of one’s credit score is a history of on-time payments. If you are timely in your student loan payments, this will help improve your credit. As the amount of money left on your loans gets lower, your score improves.
These loans also help lengthen your credit history. Loans appear on your credit report as soon as they are disbursed, even if you don’t start paying towards them until after you graduate.
An installment loan can also help you have multiple types of debt, which is beneficial to your credit.
→ Secured Credit Cards
A secured credit card is backed by an upfront cash deposit, usually the same amount as your credit limit. You use a secured credit card in the same way you would use a regular one.
You buy items or services and make a card payment on or before the due date. These cards are designed to be temporary until you’ve built up enough credit for an unsecured card.
You pay interest if you don’t pay your balance in full before the due date. When you close your account, you can get back your deposit.
Step is an example of a type of secured credit card, but you can only spend what you have in your account, meaning you don’t need to fret about interest because you pay off your balance in full automatically each month.
How Can I Check My Own Credit Score?
There are several ways you can get information about your credit. You can visit AnnualCreditReport.com for a free annual credit report from each credit reporting agency: Experian, Equifax, and TransUnion.
If you want to check your credit more frequently, you can use a service, such as Credit Karma, as often as you like. It won’t show your FICO score, but it will calculate a similar score.
Credit Karma offers reports from TransUnion and Equifax using the VantageScore 3.0 scoring model. Your score may vary slightly depending on your source. FICO and VantageScore use the same factors but weigh them differently.
- How Old Do You Need to Be to Get a Credit Card? [Minimum Age]
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Does Credit Card Piggybacking Make Sense for You?
It could be a quick boost if you’re in dire need of credit repair, though results aren’t guaranteed.
Claims promising mortgage approval, credit card company approval or instant FICO credit score boosts should be looked at with caution—especially for the high price tags charged by some companies.
That said, in some instances, using this as an attempt to come back from an unexpected credit score hit might be worthwhile if you can maintain good credit habits in the long term.
Piggybacking services offer authorized user tradelines for rent. Tradeline renting will raise your credit score, but it’s usually only worth it if your score is lower than you need it to be. If you already have a very high score, this likely won’t help you much.
However, it could be helpful if your score is on the lower end and you need it higher for something, such as mortgages. Just how high your score needs to be isn’t always easy to answer, but in general, higher scores give you lower interest rates.
As for parents offering for their kids to piggyback credit cards as authorized users to improve their credit scores can make a lot of sense. In fact, it’s one of those low-risk, high-reward situations.
Parents can add their kids as authorized users as young as 13 at some credit card companies and elect never to hand them a credit card. Adding them to multiple credit cards as authorized users can have a positive impact on their credit scores.
However, just as powerful, if you tank your own credit inadvertently, this can also harm the FICO credit scores of your children. So, you’ll need to be careful with how you handle credit piggybacking between family members.
If poorly managed, the credit line extended to your kids might hurt them more than harm them—making it even harder for them to get a credit card of their own one day.