Authorized user cards: not always a win-win

This post originally appeared October 9, 2014, on CreditCards.com as “The good and the bad of credit account ‘piggybacking’

By Barry Paperno

Dear Speaking of Credit,
What about piggybacking on a nonspouse/family member’s credit account? Can the piggybacker be held responsible for paying the debt on the account? — Kevin

Dear Speaking of Credit,
If a family member is added to a credit card, as an authorized user will it help to build his/her credit, even if he/she does not use the card? — Eli

Dear Kevin and Eli,
Thanks to both of you for your questions, and since they’re similar, I’ll answer them together.

A “piggybacker,” more commonly known as an “authorized user,” is a person permitted to use a credit card by a primary cardholder who maintains responsibility for all debt on the card, regardless of who makes the charges. Authorized users are typically — though not always, as you’ll see — a spouse, partner, child, relative or friend of the primary account holder.

The term “piggybacking” refers to the way in which the entire credit history of an account is not only included in the primary cardholder’s credit report and score, but also becomes part of the authorized user’s report and score. To answer your question, Eli, this happens whether the card is actually used by the authorized user or not.

In recent years, piggybacking has become one of the more popular, and at the same time controversial, ways of building credit for someone who is either new to credit or recovering from financial setbacks. Popular, due to the ease with which an authorized user can be added to an account — no credit requirements — and the immediate scoring benefit that can be realized from the primary cardholder’s (hopefully) positive credit history. Controversial, in that someone who has not used, not managed, or has even misused credit in the past, can reap the scoring benefit of a seasoned and well-managed card without having truly done anything to earn the additional scoring points that can accompany the account. For example, a young person piggybacking on a parent’s long-held and well maintained card can, without having any credit of her own, achieve a very good credit score based on a credit history older than she!

But, the piggybacking picture is not all win-win for authorized users.

Since the card history — good or bad — is included in the authorized user’s credit report and credit score, it behooves the authorized user to make sure the card is always paid on time and maintains low credit utilization (card balance/limit percentage). Otherwise, piggybacking could backfire and result in a worse credit score than you’d have without being an authorized user on the card. In fact, consider this to be just one more of the many good reasons to check your credit reports at least once per year, by going to annualcreditreport.com.

Fortunately, should you discover that the primary account holder is not managing the account to your liking, you can have yourself removed from the account — preferably by having the primary account holder contact the lender — and have it removed from your credit report by disputing it as “not mine” with the credit bureaus.

Perhaps the most controversial aspect of piggybacking in recent years has been the use of this feature to artificially inflate credit scores for profit via a purely business-only relationship in which the piggybacker, often a complete stranger, pays to be added as an authorized user without receiving a card or participating in the managing the account in any way.

In an attempt to head off such piggybacking abuse, the FICO 8 credit score, launched in 2009, initially excluded accounts held as an authorized user from scoring. FICO quickly reversed course, however, and went back to allowing piggybacking in scores — but with an adjustment to generate fewer points for accounts held as an authorized user than as a primary account holder. It had become apparent to FICO that the price for discouraging piggybacking abuse by a relative few would be the denial of honestly-earned credit history for millions of legitimate authorized users — most often the spouses of primary cardholders — who use and manage these accounts no differently than those in the primary role.

So, Kevin and Eli, now that you probably know more about piggybacking than you ever thought you would, you may want to simply consider the authorized user option as an easy-to-implement, minimal-risk way to build or rebuild credit — whether or not you intend to use or help manage the account — and with an easy way out, should the relationship go bad.

Have a question or comment?  Let’s hear it!

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