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Piggybacking: What's the Deal?

Piggybacking, a technique often used to build credit by paying to become an authorized user of a stranger's credit card account, has been under fire since it first gained widespread popularity in 2007. In practice, the loophole in the credit scoring system works great, which is perhaps why it's ruffled the feathers of so many people that find it unfair and sleazy.

Should it really be so easy to dupe the system? Instead of slowly building my credit history one on-time payment after the next, I can simply pay someone to add a credit card with a high credit limit, low balance, and a clean payment history directly to my credit report. And voila - I instantly have stellar credit and thus a higher credit score.

Millions of people have benefited from artificially boosting their credit scores this way, and there's no doubt in my mind that many credit repair agencies have made a nice profit from connecting buyers and sellers of trade lines as well.

The controversy around piggybacking continues today. In fact, each time the topic is brought up in our Credit Talk Forum, it's cause for a lengthy and controversial thread about whether or not the new FICO 08 model can really do what it claims. That is, weed out those individuals paying to add seasoned trade lines to their credit reports from legitimate authorized users.

Of course, adding a spouse or a family member as an authorized user to help boost their credit score is nothing new. People have been doing it for ages, and it's perfectly legal. According to the FTC, there's nothing illegal about paying to have it done as well (although there may be some ethical questions to consider). I'm not saying I think piggybacking is completely fair or our credit-scoring model is perfect, but once and for all I really would like to know - what's the deal? Has piggybacking finally seen it's day?

In a press release issued earlier this year, Fair Isaac claimed that "FICO 08 helps lenders protect against authorized-user account ‘piggybacking’ by incorporating new patent-pending technology that materially reduces the potential score impact associated with the abuse of authorized user accounts. By considering authorized user accounts in score calculations, FICO 08 continues to support lenders’ abilities to comply with federal regulations." Well, that makes it all so clear now. There's a new "patent-pending" technology that separates the good from the bad. I wonder what that might be? Matching addresses somehow or weeding out unused authorized user accounts?

All the possible methods have been discussed before, and none of them will work. While I have no doubt there are some really smart mathematicians working hard over at FICO day and night, I'm not quite sold on the whole secretive "patent-pending" approach that FICO has taken. It sounds more like a scare tactic to me. There will always be a lot of speculation over this issue, so I prefer to just look at the facts. It's a fact that authorized user accounts are still included in the FICO credit-scoring model today. We know that based upon FICO's own words in the statement above. And we also know that the ECOA (Equal Credit Opportunity Act) precludes the removal of authorized users, and it always will until the law itself is changed.

So, until the mathematicians are willing to explain in more detail how they can magically tell whether an authorized user is a spouse or not, or Congress changes the law, I'm inclined to believe nothing much has really changed. What do you believe?

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Joshua Heckathorn's picture

Joshua Heckathorn was President of Creditnet, is a credit expert and has been featured on CNNMoney, FOX Business, Yahoo Finance, The Street, and many other national publications during the past ten 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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