Piggybacking is almost as old as credit monitoring. The first step for many young adults looking for a way to build credit was getting their parents to add them as an authorized user. It was a simple formula. Someone with good credit adds you as an authorized user on one or more of their credit cards, your credit score is then positively affected just as if you were a joint account holder. As long as the card's owner covers their payments and doesn't have debt, you'll get a free ride to better credit. As well as students working to build a credit history, this practice also benefits stay-at-home parents who could keep good credit by tagging on the higher credit limits of their working spouse.
But as it turns out, piggybacking wasn't all fun and games. Before long, credit repair companies had found a way to capitalize on this opportunity to turn bad credit into good. Their services allowed people who had terrible credit to be signed up as authorized users by strangers who had excellent credit, for a fee. Since it isn't illegal to add authorized users to your card (indeed many cards promote this as a benefit) there was little to be done about this mischievous credit abuse.
After many years of credit seekers getting something for nothing, lenders began to complain about getting tricked into giving out loans and called piggybacking a form of fraud. That's where FICO® 8 came in. Credit bureaus had long been tweaking their scoring practices in an attempt to keep up with changes in consumer behavior. The FICO 8 credit was introduced in 2009 as the newest generation of the FICO credit score, and after a brief period of legal and consumer backlash it is now finding acceptance among many lenders. Citi became the first major bank to adopt FICO 8 for its credit card division.
The FICO 8 scoring system primarily affects these 4 areas of card usage:
1. As an authorized user, your credit score will be calculated based on all your payment activity. Your role as an authorized user will affect your credit, but not as much as it did on previous FICO models. How much your FICO score benefits from being added as an authorized user will be judged on a more individual basis. If a parent or spouse adds you as an authorized user, your credit score will in most cases benefit as it did previously. Those added as authorized users to an account that isn't owned by a family member are much less likely to see their credit score go up.
2. It's more sensitive to heavy credit card utilization. If your credit report shows a high balance close to the card's limit, your score will be affected more than it would have before. More than ever you will want to avoid high balances.
3. Isolated late payments are noted on FICO 8. If the late payment (at least 30 days) is an isolated event and your other accounts are in good standing, the FICO 8 Score is more forgiving compared to previous FICO scores. On the flip side, if you regularly make late payments, your score will be affected (negatively) more than what you're used to.
4. FICO 8 Score ignores small-dollar "nuisance" collection accounts (where the original balance was less than $100). That means that a small balance you carry, for example on a store account, won't negatively impact your credit score as much as it did before.
What this means for you is that piggybacking can still help your credit score, but you have to do it right. If building credit is your main objective, then stick to family members, and only those with good to excellent credit. If this family member doesn't mind, you may want to use the card at least a little bit. Keep in mind that your score will now be based more specifically on your financial activity.
And remember, piggybacking is no longer a one-stop solution to building credit. There are several different ways to improve your credit score and if you make use of them you can build good credit in a relatively short amount of time.
You can also start building your own credit history by using a student credit card or secured credit card. Just be sure never to apply for more than 1 or 2 per year, as making too many applications will damage your score. Here I list some good cards for building or repairing credit:
Capital One® Secured Mastercard® is one of the cheaper secured credit cards available, with no annual fee. You can use this card everywhere that MasterCard is accepted, and if you make your payments on time you can receive higher credit limits. The purchase and balance transfer APR is relatively high, at 26.99% variable APR, but not as high as the APR that many other cards for bad credit charge. Avoid carrying large balances to stay away from APR charges and build a good credit history. There is no application fee. This card will benefit you most if you want to repair bad credit.
Read our review of Capital One® Secured Mastercard® here.
If you want to keep a tight thumb on your credit score, then myFICO might be the right service for you. It includes special tools to help you predict how financial decisions could impact your credit score. You get your FICO® Score and Equifax credit reports 2 times per year and it alerts every time your credit score changes. As an introductory offer, you will only pay $4.95 for the first month, then $14.95 a month.