What is Credit Piggybacking? 

Do one thing: Before adding an authorized user to your account, set up ground rules for how the person plans to pay back any charges they make each month.

Building Credit When You Have No Credit

It’s a financial conundrum for the ages: When you have little or no credit, it’s tough to build credit. Young adults who have no credit cards of their own—and many times no income on which to qualify for a card—run the risk of launching into life with no credit or what’s known in the finance world as a thin credit file.

What is a Thin Credit File?

Having a thin credit file makes it difficult to rent an apartment or get a decent rate on auto insurance, among other things. Why? Landlords and insurance agents often use credit scores in most states to decide whether someone is creditworthy enough to do business with.

What is “Credit Piggybacking?”

This is one of the instances where piggybacking can come into play. Sometimes parents add a child to one or more of their accounts as an authorized user, so the child is, in essence, piggybacking on their good credit behavior.

• Authorized Users. Adding an authorized user to a credit account can help boost their credit if you already have a healthy credit score and practice smart financial habits, such as paying your bills on time every month.

When Should You Do It?

A parent adding their child to an account to help them build a credit file is a better choice than co-signing for a credit card for a young adult.

Make Sure it Counts

When parents add a child as an authorized user, check in with the credit card issuer to make sure they report the new user’s activity to the three major credit bureaus. If they don’t, check your wallet for another card issuer who will.

Potential Impacts of Piggybacking

There are a few things to take into account before adding an authorized user:

• If the credit owner doesn’t have a great score, it could negatively impact the potential authorized user’s score, too.

• The authorized user is not legally liable for the charges they incur.

• Some issuers no longer report authorized users to the three main credit reporting bureaus because of issues arising from allowing strangers to become authorized users on an account for a fee.

Beware Piggybacking Scams 

This leads to a warning about credit repair companies. The Federal Trade Commission (FTC) identified a company that was cheating people out of money with promises to repair their credit in 45 days by piggybacking onto the account of someone with good credit. In this case, the company told people they would become an ‘authorized user’ in name only on a credit card account, but they never had access.

How to Protect Yourself Against Scams

In reality, most credit repair companies can’t do anything you can’t do for yourself for free. The FTC created a list to help people spot credit repair scams, including what to do if you paid a scammer for a piggybacking scheme or anything else.

Here’s how to know if you’re dealing with a scammy credit repair company: they’ll typically do the following:

• Insist on payment before they help you.
• Discourage you from contacting the credit bureaus directly.
• Tell you to dispute credit report information you know is accurate.
• Tell you to lie on your credit and loan applications.
• Ask you to file a false identity theft report. 
• Don’t explain your legal rights when they tell you what they can do for you.

Be Patient

The truth is, when it comes to building and repairing credit, it doesn’t happen overnight. Expect it to take a solid six months for a parent reporting on behalf of a child as an authorized user for them to develop an active enough credit file to be able to get a card on their own.

With reporting by Casandra Andrews