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The Risks of Piggybacking



If you didn't already get the memo, piggybacking still works! I know I've written about this topic before, but this is just one of those posts that needs to be resurrected every now and then.

In fact, for those that have no credit at all, piggybacking remains one of the fastest ways to add positive credit history to credit reports and give your FICO scores an immediate boost.  I recommend it quite often to parents and spouses who are interested in helping a child or significant other build credit from scratch, even though the practice continues to receive a lot of bad press.

But while I consider piggybacking to be a rather safe credit-building technique, it's also important to understand that it's not risk free.  Especially if you're the one seeking to build credit, there's one big risk to consider before you're added as an authorized user on anyone's account. What if the account holder responsible for the card eventually racks up a bunch of credit card debt and stops paying?  How would that affect you?

For example, let's say your spouse adds you as an authorized user on two of her oldest no annual fee credit cards in good standing because you have zero credit history. Everything's great, the cards appear on your credit reports after a few months, your credit scores improve as a result of the positive history that's now part of your credit profile, and soon you're able to even get approved for an auto loan in your own name.  Life is good.

Now let's fast forward 5 years and imagine things haven't been going so well in your marriage.  Life isn't that good anymore.  Not only are you separated, but money is tight and you need to apply on your own for a new apartment in a cheaper part of town.  When you do, you're surprised to learn that your application was rejected because one of your credit cards was charged off, sent to collections and really hurt your credit scores.  But you know that you've been paying all your credit cards on time.  How could this be?

As you delve into the details it turns out the culprit is one of the accounts on which you were added as an authorized user over 5 years ago.  Your spouse simply stopped paying 6 months earlier, and now your credit scores are paying the price too.  Crap! Whatever you do, don't just give up and accept that you'll have bad credit scores for the rest of your life.

 If you were simply an authorized user on the account, you should not be considered financially responsible, which means you need to push the issue and fight to have the account removed from your credit reports. Get in touch with your bank, write a letter to the CEO, and don't give up until you get an acceptable response from someone in a position of authority.  There's a good chance your bank might be willing to remove you from the account once they better understand your situation.

For those of you still considering the "piggybacking path", let this example highlight the importance of not only checking your credit reports often to make sure all is well, but also removing yourself as an authorized user as soon as your credit has been established and you're able to continue building credit in your own name. If you follow these rules and only rely on those you can trust with your financial future, piggybacking can be an effective technique to help build credit from scratch with little risk to both parties.

Updated June 1, 2012

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Joshua Heckathorn's picture

Joshua Heckathorn is a credit expert and has been featured on CNNMoney, FOX Business, Yahoo Finance, The Street, and many other national publications during the past twenty years.  He received a Bachelor of Science in Management (Finance) from Brigham Young University's Marriott School of Business and earned his MBA from Seattle University.

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