When you say the phrase “piggybacking,” it instantly conjures up images of someone riding on someone else’s back to get to the same destination. The process of piggybacking credit scores to improve a credit rating has been going on for a long time.
When the Great Recession hit in 2008, lenders started to complain about allowing consumers to piggyback credit scores. The Fair Isaac Company, also known as FICO, tried to do something about piggybacking. But without government support, it is difficult for the credit companies to keep piggybacking out of the credit score calculations.
How it Works
The plain and simple definition of piggybacking a credit score is the raising of someone’s credit score by making that person an authorized user of a credit account in good standing. The positive credit history of the piggybacked credit account hits the authorized user’s credit profile within 30 to 60 days. After two or three months of increased credit, the credit rating companies will normally remove the effects of an authorized credit account.
Some cards make piggybacking easier than others. American Express allows up to 99 authorized users per card and makes it very easy to put authorized users on an account. Bank of America only allows two or three authorized users per account and will often reject authorized users that are not immediate family members.
Credit repair companies began offering a service that allowed people to buy authorized accounts on the credit cards of complete strangers. A consumer looking to get a temporary boost to his credit score would pay money to a credit repair company, and then the credit repair company would buy an authorized account on someone else’s credit card.
The people selling authorized accounts would get a card in the mail for each authorized account that was opened. The one thing that protects the main account holder in this relationship is that the extra card goes to the home address on the account and not the address of the authorized account.
The business has become so lucrative that people with good credit are getting credit cards specifically to sell authorized accounts. They maintain a small balance on the card so the credit rating remains high, and then sell accounts to strangers through a credit repair company.
Lenders started to complain to the credit reporting agencies that authorized accounts were distorting credit scores. For example, someone with a credit score of 625 that is looking for a car loan may be entitled to an interest rate of 9 percent. But that person can piggyback on someone else’s good credit account and raise his score up to a 700. The lender only sees the 700 credit score and winds up giving a loan with an interest rate of 5 percent.
The lender feels cheated out of the money that could have been realized by the higher interest rate. The other problem is that the real risk associated with the borrower has been disguised and the loan is given under false pretenses. Most lenders went to the point of calling piggybacking a form of fraud.
Unfortunately for lenders, piggybacking is not exactly illegal. Since authorized accounts are allowed by credit card companies, and the main account holder permits the authorized account to be granted, the situation is not considered to be legally fraudulent. So the lenders turned to FICO for help, and a new system was introduced.
The Temporary Solution
In 2008, Fair Isaac introduced a new credit score algorithm known as FICO 08. It was designed to be able to determine which kind of credit card accounts were piggybacked accounts and prevent those piggybacked accounts from artificially inflating a consumer’s credit score.
Fair Isaac does not release the inner-workings of its algorithms because those secrets are the key to the FICO business model. But credit experts suggest that the algorithm looks at the credit history of each account on a person’s profile and tries to separate out the piggybacked accounts based on how the card is used. It is a complicated process that FICO updated in 2009 to try and get even more precise.
The Resurgence of Piggybacking
While piggybacking has been a thorn in the side of lenders for a long time, few of them actually bought into the concept of the original FICO 08 algorithm. Most lenders tried to use a manual analysis of each consumer credit report to identify piggybacked accounts.
The problem is that piggybacking is not always done with strangers. There is a legitimate way to piggyback on to a credit score that still exists even after FICO 08. People are allowed, and even encouraged, to piggyback on to the credit card account of relatives to try and protect or improve their credit score.
For example, if a husband and wife want to apply for a mortgage and the wife has great credit but the husband does not, then the wife is encouraged to get a credit card account and add her husband as an authorized user. The two can then monitor the card together to improve his credit score and get a better interest rate on their mortgage. Parents can do the same thing for children getting started in college or their first job.
In 2010, Fair Isaac made significant updates to FICO 08 that has helped reduce the impact of non-family piggybacked credit accounts on credit scores. The ability to buy an authorized credit account that can temporarily raise your credit score still exists, but the advances to FICO 08 could make your investment worthless.
How to Piggyback Successfully
The best time to piggyback on to a good credit account is two to three months before you plan on applying for an important loan. This gives the piggybacked account enough time to take effect and raise your credit score. It is also within the window of time that exists before the credit reporting agencies remove the positive effects of the piggybacked account.
Remember that an authorized user account only affects your credit score for three to four months. So if you plan on using piggybacking to help you get a better interest rate on your mortgage, you need to keep a close eye on your scheduling.
The most effective form of piggybacking is to get on the account of a family member. The FICO 08 algorithm does allow authorized accounts from family member credit cards to temporarily improve a credit score. The other advantage to using a family member’s account is that you will not have to pay a service fee to a credit repair company to get the authorized account.
The most prominent scam in piggybacking is paying for an authorized account and either not receiving the account or getting information on a false account. Before you decide to work with a credit repair service on getting a piggybacked account, do some research and check into the history of the company. Check with the Better Business Bureau to see if there is a history of complaints against the company. Scammers normally put up a series of red flags that can be found with a little research.
The biggest danger for anyone who pays to get an authorized credit account is that the score of the main cardholder goes bad. As an authorized account, you have no control over paying the bill and you have no access to any of the payment methods. If the main account suddenly takes a nose dive, your credit score will go down instead of up and you are out the hundreds, or thousands, of dollars you paid for the account.
The other danger in piggybacking with a non-family account is giving your sensitive financial information to a complete stranger. Your social security number is required to get an authorized account with most credit card companies. Releasing that information to the credit repair company and the main account holder can be extremely dangerous.
Piggybacking is a way to temporarily improve your credit score by using someone else’s good credit. It can seem like a quick way to save money by getting a lower interest rate on a loan, but it also has risks that you need to be aware of.